0001 1 2 3 4 5 6 * * * * * * * * * * * * * * * * * 7 8 TEXAS LOTTERY COMMISSION 9 PUBLIC HEARING 10 JUNE 30, 2004 11 12 * * * * * * * * * * * * * * * * * 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION held a Public Hearing on the 30th day of 20 June, 2004 at 8:00 a.m., before Kimberlye A. Furr, RPR, 21 CSR in and for the State of Texas, reported by machine 22 shorthand, at the offices of the Texas Lottery 23 Commission, 611 East 6th Street, Auditorium, Austin, 24 Texas, 78701, whereupon the following proceedings were 25 had: 0002 1 2 APPEARANCES 3 4 Chairman: 5 Mr. C. Tom Clowe 6 Commissioners: 7 Mr. James Cox, Junior 8 Mr. Rolando Olivera 9 Committee Members: 10 Ms. Kimberly L. Kiplin 11 Mr. Reagan E. Greer 12 Mr. Billy Atkins 13 Mr. Gary Grief 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 (Proceedings from audiotape) 2 COMMISSIONER CLOWE: Good Morning. 3 Ladies and gentlemen, we've had a misunderstanding on 4 the part of the court reporter who was due to be here 5 so we could begin the meeting at 8:00 a.m., and that 6 person is in transit now. In order to convene this 7 meeting, we are going forward on an audio transcript, 8 and that is a legal record of this open meeting, so we 9 are within the requirements of the Open Meetings Act. 10 In so doing, until the report arrives, I would like to 11 ask each of you who make an appearance or speaking in 12 your reports or you're addressing the Commission to 13 identify yourself and to speak so that the recording 14 can get your comments clearly, and we'll all be 15 respectful of each other and not speak over one another 16 so the recording will be accurate. 17 Having said that, we'll convene this 18 meeting of the Texas Lottery Commission. It is June 19 the 30th, 2004, and we will go to Item 2 on the agenda: 20 Consideration of and possible discussion and/or action 21 on removal from nominations and/or appointments to the 22 Bingo Advisory Committee. 23 Mr. Atkins. 24 MR. ATKINS: Thank you, Mr. Chairman. 25 There are two specific action items that the staff 0004 1 would be bringing forward under this. The first deals 2 with an appointment to the Bingo Advisory Committee in 3 the conductor lessor category that was created by the 4 resignation of Marilyn Matthews. Kimberly Rogers is 5 the nominee and she's from Bexar County. Each of you 6 had the opportunity to interview her individually on 7 June 17th. This would be the first time that you'd 8 have the opportunity as a Commission to discuss this 9 appointment. Ms. Rogers had indicated to me on the 10 17th that she was going to try and be here for the 11 meeting. I don't see her in the audience at this time, 12 but I do understand that the traffic from San Antonio 13 is bad due to the weather. You do have in your 14 notebook the interview questions that the Bingo 15 Advisory Committee asked Ms. Rogers as well as her 16 nomination form, and I'd be happy to try and answer any 17 additional questions you may have. 18 CHAIRMAN CLOWE: Are there any 19 questions? 20 Commissioners, I understand that each of 21 you have visited with this lady, and I visited with 22 her, and if there are no questions, I would move that 23 she be appointed to the Bingo Advisory Committee. 24 What is the length of the term, Billy? 25 MR. ATKINS: She will fill the unexpired 0005 1 term of Marilyn Matthews that is scheduled to expire 2 now in February of 2007. 3 CHAIRMAN CLOWE: That's my motion. Is 4 there a second? 5 COMMISSIONER COX: Second. 6 CHAIRMAN CLOWE: All in favor, please 7 say aye. Opposed, no. The vote is three/zero in 8 favor. 9 Billy, will you undertake to notify her 10 and express the Commission's pleasure at her accepting 11 this appointment and that look forward to having her as 12 an active member of the Bingo Advisory Committee? 13 MR. ATKINS: I will, Mr. Chairman. And 14 as is our normal practice, I will also ask from her 15 written confirmation of her intent to accept the 16 appointment and serve on the committee. 17 The next item deals with the SSP 18 representative. Patricia Greenfield as been the 19 representative in that position and she submitted the 20 letter on May 17th of this year indicating that it was 21 not her intent to renew her license. She hasn't 22 renewed her license for a system service provider and 23 there is no other individual in the State of Texas that 24 currently holds an SSP license, and legal has advised 25 the Charitable Bingo Division that there's no authority 0006 1 for the Commission at this time to appoint anyone other 2 than a licensed SSP to the position, so in as much as 3 Ms. Greenfield doesn't hold a license in that, the 4 staff would recommend that she be removed from that 5 position. One issue that was raised was the fact that 6 that will leave eight members on the advisory committee 7 and the possibility for a tie vote, if you will, but 8 it's been pointed out that the advisory committee is 9 not a decision making body, so they would simply report 10 to the Commission on any action if they had a tie vote 11 that that, in fact, was what occurred. 12 CHAIRMAN CLOWE: Does this require a 13 motion? 14 MR. ATKINS: I believe it does. 15 CHAIRMAN CLOWE: Are there any 16 questions? 17 What's the motion that's being 18 requested, Billy? 19 MR. ATKINS: To remove Patricia 20 Greenfield from the Bingo Advisory Committee as the SSP 21 representative. 22 CHAIRMAN CLOWE: So moved. Is there a 23 second? 24 COMMISSIONER COX: Second. 25 CHAIRMAN CLOWE: All in favor, please 0007 1 say aye. Opposed, no. The vote is three/zero in 2 favor. 3 Anything further under this item, Billy? 4 MR. ATKINS: I just wanted to give you 5 an update on the charity position vacancy that was 6 created through the resignation of Virginia Brackett. 7 We have received as of yesterday, 11 nominees, 11 8 applications, for that package. We haven't begun to 9 analyze them yet. On the surface, it appears there may 10 be one or two that aren't eligible, but otherwise, 11 we've been fairly pleased with the response we've 12 gotten so far. 13 CHAIRMAN CLOWE: Great. That's good 14 news. And when is the next meeting of the committee? 15 MR. ATKINS: July 16th -- July 14th. 16 CHAIRMAN CLOWE: July 14th? 17 MR. ATKINS: Yes, sir. 18 CHAIRMAN CLOWE: Thank you. Anything 19 further? 20 The next Item Number 3: Consideration of 21 and possible discussion and/or action, including 22 proposal, on new charitable bingo rule relating to 23 temporary license. 24 Ms. Joseph, good morning. 25 MS. JOSEPH: Good morning. This item 0008 1 concerns a draft new rule that defines terms, addresses 2 requirements for temporary licenses, and also sets the 3 standards for conducting charitable bingo under a 4 temporary license. At the December 3rd, 2003 meeting, 5 the Bingo Advisory Committee recommended that the 6 Commission publish the proposed new rule for public 7 comment. 8 CHAIRMAN CLOWE: Is there any question 9 or comment? 10 COMMISSIONER COX: What is the gist of 11 the change of this from the previous rule? 12 MS. JOSEPH: Well, there was not a 13 previous rule, and so what this will do is, there were 14 parts of other rules that addressed temporary licenses, 15 but this really just sets it all out for them and pulls 16 everything together. 17 COMMISSIONER COX: It brings it into one 18 place? 19 MS. JOSEPH: Yes, uh-huh. 20 UNIDENTIFIED MALE SPEAKER: And it also, 21 Commissioner Cox, incorporates some of the requirements 22 of House Bill 2519. This was driven largely by House 23 Bill 2519. 24 CHAIRMAN CLOWE: Is there a motion? 25 COMMISSIONER COX: I move. 0009 1 COMMISSIONER CLOWE: So moved. Is there 2 a second? 3 COMMISSIONER OLIVERA: Second. 4 COMMISSIONER CLOWE: All in favor please 5 say, aye. Opposed, no. The vote is three/zero. Thank 6 you, Sandy. 7 MS. JOSEPH: Thank you. 8 COMMISSIONER CLOWE: The next Item Four: 9 Report, possible discussion and/or action on lottery 10 sales and trends. 11 Mr. Deviney. 12 MR. DEVINEY: Good morning, 13 Commissioners. I'm Lee Deviney Financial 14 Administration director. June 2004 has been a big 15 month for lottery sales, to say the least. 16 CHAIRMAN CLOWE: It's not over. 17 MR. DEVINEY: And we're not done yet. 18 It's going to go right on into July. 19 COMMISSIONER CLOWE: Right. We've got, 20 what, the third largest Mega Millions jackpot working 21 as of last night? 22 MR. DEVINEY: I believe that's correct, 23 and, of course, our biggest Lotto jackpot, which you'll 24 hear more about later. 25 Tab four in your notebook is a report on 0010 1 lottery sales and trends. This morning we've provided 2 you an updated report topped by three summary memos 3 dated today. The first memo indicates an unaudited 4 fiscal year 2004 sales for June 26th amounted to $2.862 5 billion. At this time that's a 10.1 percent increase 6 over fiscal year 2003 sales, which were $2.6 billion 7 for the same time period. Our weekly sales average for 8 the year to date is $66 and a half million compared to 9 where we were in fiscal year 2003, which was $60.4 10 million. 11 The second memo compares sales for the 12 last two full weeks ending June 26th and June 19th, 13 2004. For that two-week period, lottery sales 14 decreased 40.3 percent. The dropoff was due to the 15 drop off in sales after the $145 million Lotto Texas 16 jackpot was hit on June 18th. However, lottery sales 17 for the week ending June 26th was still a very robust 18 $73.1 million. 19 The third memo describes fiscal year 20 2004 sales by product compared to fiscal year 2003 21 sales for the same time period, with instant tickets 22 and Pick Three posting the largest year to year sales 23 increases. That is my report. 24 CHAIRMAN CLOWE: Comments? 25 MR. DEVINEY: Under tab five of your 0011 1 report Joyce Bertolacinia, the commission's 2 historically -- 3 COMMISSIONER CLOWE: Wait just a minute 4 before you move on. I think we ought to relish this 5 just for a minute. Let's chew on this a little bit. 6 Reagan, sales are up ten percent now. 7 MR. GREER: Yes, sir. I've been smiling 8 all week. 9 CHAIRMAN CLOWE: And that was the 10 largest Lotto Texas jackpot in the history since the 11 game got started. 12 MR. GREER: And we've continued to have 13 some pretty monumental things. That was one of them, 14 the $145, but the bigger one to me was the $122.5 15 million, which we reached during that sales week of the 16 $145 million, the largest in the history of the 17 lottery. Prior to that, it was $103 million. And, of 18 course, today hitting $280 is an all-time high for Mega 19 Millions in the State of Texas. You mentioned the Mega 20 Millions, $363 was their biggest jackpot to date, and 21 we're going to go into this further on our online sales 22 agenda item, and we'll continue to relish the moment, 23 but it's very impressive. Staff has done a great job 24 at keeping everything moving smoothly through the 25 process. 0012 1 CHAIRMAN CLOWE: It's, I think, 2 significant that the instant tickets maintained their 3 strength and continue to be selling while the online 4 games got all the attention. 5 MR. DEVINEY: Yes, sir. We've seen a 6 couple of interesting scenarios; that's one of them. 7 You know, we anticipated, based on that $145 level, 8 that some of the other games may fall off, but they 9 held. And specifically in the summer months, in the 10 past instant tickets have taken a hit. A lot of people 11 came in and they were just in the mood and excited by 12 buying a Lotto Texas ticket and also picked up a 13 scratch-off. Another part of that is, our sweep 14 concept is working well, in reference to bringing out 15 more than one game at a time at different price levels. 16 Another aspect of the new game, Corvette Cash is out, 17 and there's a lot of enthusiasm for that, so there was 18 a number of things that attributed to that. 19 CHAIRMAN CLOWE: So, although the Lotto 20 Texas was really getting the attention, overall sales 21 were strong. We can say now the facts certainly prove 22 out that the game is jackpot driven. 23 MR. GREER: No question. 24 COMMISSIONER CLOWE: And it is a fact 25 that somebody can win it. 0013 1 MR. GREER: No question. 2 CHAIRMAN CLOWE: We do have a winner in 3 El Paso. 4 MR. GREER: Yes, sir, a winner has 5 stepped forward, a phone call, and our legal staff has 6 been working with them. I know they do have an 7 attorney and they're getting their financial and their 8 other legal information together before they come here. 9 MS. KIM: And I guess for the record 10 since we don't have a court reporter, my name is 11 Kimberly Kiplin, the general counsel for the Lottery 12 Commission. Just to be square legally, we do not yet 13 have a winner. There has not been a claimant who has 14 come forward and filed a claim and then that ticket 15 validated. There is somebody who has identified 16 themselves as holding the ticket that matches. I 17 just -- 18 CHAIRMAN CLOWE: Well, that's not what 19 the newspaper told me. You can't believe what you read 20 in the paper. 21 MS. KIPLIN: I just want to make sure 22 we're clear. 23 CHAIRMAN CLOWE: We have a claimant. Is 24 that correct. 25 MS. KIPLIN: We do not even have a 0014 1 claimant at this point. Nobody has come forward to 2 claim that prize. There have been some phone contacts 3 back and forth with somebody who has represented that 4 they are holding the ticket that matches. 5 CHAIRMAN CLOWE: We can say there has 6 been a winning ticket sold? 7 MS. KIPLIN: I'm not even going to -- 8 until the ticket actually is presented, I can't -- 9 CHAIRMAN CLOWE: I'm looking for a way 10 out and I can't find it. 11 MS. KIPLIN: And it validates and it was 12 purchased in compliance with all our statutes and our 13 rules, I'm not -- would not agree with the fact that we 14 would say we even have a winning ticket. We have a 15 ticket that we know has been sold that has matched 16 numbers. 17 CHAIRMAN CLOWE: Okay. That's what I'd 18 call a winning ticket. We didn't roll the jackpot, did 19 we? 20 MS. KIPLIN: No. And I know that's -- 21 CHAIRMAN CLOWE: Did that "no" get on 22 the record. 23 MS. KIPLIN: The "no" is on the record, 24 but I'm mindful of the Scott Winner case in which we 25 did have somebody who purchased a ticket; it did match, 0015 1 but it was purchased not in compliance with statutes 2 and rules, and then so we made the determination it was 3 not a winning ticket. And I'm sorry I'm being a 4 stickler, but you never know what will present itself 5 in the future. 6 CHAIRMAN CLOWE: This Commission wants 7 you to be a stickler. We appreciate that. We're still 8 relishing the moment. 9 MR. GREER: Well, I stand corrected, but 10 there was a lot of excitement certainly in the El Paso 11 area over the whole scenario and we continue to look 12 forward to this individual bringing forward the winning 13 ticket. 14 COMMISSIONER COX: Mr. Chairman, I have 15 a question. 16 COMMISSIONER CLOWE: Yes, sir. 17 COMMISSIONER COX: Ms. Kiplin, if this 18 person were to come in and we were to find that they 19 didn't -- weren't able to buy that ticket for whatever 20 reason, what would happen to the jackpot? 21 MS. KIPLIN: I'm going to not answer 22 your question right now because I want to go back -- I 23 will answer your question, but I want to go back and 24 review the file and make sure that I'm certain of what 25 would occur, so I'll leave it at that. 0016 1 COMMISSIONER COX: So it might not be an 2 unclaimed prize; it might be reinstated for people to 3 play for or -- 4 MS. KIPLIN: My recollection is that 5 it's unclaimed. It's an unclaimed prize, but I want to 6 make sure that I'm careful in my remarks because that's 7 a significant issue. 8 CHAIRMAN CLOWE: Thank you, Kim. That's 9 a good answer. Thank you, Commissioner Cox. Good 10 question. 11 Any comment, Commissioner Cox? 12 COMMISSIONER COX: No. Thank you, Mr. 13 Chairman. 14 COMMISSIONER CLOWE: I want to go back 15 to Item Number Two. I think, Billy, you may have a 16 comment you want to make. 17 MR. ATKINS: I do. Commissioners, I 18 wanted to let you know Kimberly Rogers is in the 19 audience. She did, as we expected, encounter some 20 problems with the weather, but she is here now and I 21 informed her of your actions and that we would be 22 getting her a letter hopefully before she leaves 23 notifying of her that. 24 CHAIRMAN CLOWE: Very good. Ms. Rogers, 25 would you stand so everybody can recognize you. Thank 0017 1 you for your volunteering to be part of the Bingo 2 Advisory Committee. 3 Now, Mr. Deviney, I think we're ready 4 for Item Number Five on the agenda. 5 MR. DEVINEY: Okay. Well, we can relish 6 Joyce's report, which is actually a very good report, 7 too. Joyce Bertolacini -- 8 COMMISSIONER CLOWE: We like to relish. 9 MR. DEVINEY: -- historically 10 underutilized business coordinator, will summarize the 11 lottery's monthly HUB and minority business 12 participation activity reports and report on the 13 agency's annual HUB forum. 14 MS. BERTOLACINI: Good morning, 15 Commissioners. For the record, my name is Joyce 16 Bertolacini, and I'm the agency's historically 17 underutilized business coordinator. 18 Included in your notebook is the May HUB 19 minority contracting activity report, which includes 20 all fiscal year 2004 expenditures from September 1st of 21 2003 through May 31st of 2004. Our total qualifying 22 expenditures as of May 31st were $108.9 million and our 23 estimated HUB utilization was $32.3 million, which 24 equates to 29.68 percent. 25 And I'd also like to give you a quick 0018 1 report on our HUB forum that we conducted last 2 Thursday. We had 68 HUB vendor attendees as well as 11 3 prime vendor representatives who were present. All the 4 agency's divisions were represented during the 5 networking portion of the forum, and so far we've 6 received very positive feedback from the attendees. 7 Also, part of the forum was designed to recruit new 8 participants to our mentor protege program, and at this 9 point we're still overseeing two relationships. If we 10 don't get a very high response from the forum -- from 11 the vendors who attended the forum, we'll be working on 12 other means of participating new -- of recruiting, 13 rather, new participants. 14 And I'd be happy to answer any 15 questions. 16 CHAIRMAN CLOWE: Joyce, I think each of 17 the commissioners individually yesterday received a 18 briefing from the executive director on the forum and 19 the work that you're doing, and I want you to know the 20 Commission is extremely pleased to be where we are 21 among all the agencies of the state in this area of 22 activity and we want you to continue your efforts in 23 this area and we're very proud of the good work that's 24 being done here. 25 MS. BERTOLACINI: Well, thank you. And 0019 1 I'd just like to say that it was a team effort putting 2 the forum on and having the executive director and the 3 deputy executive director and representatives, 4 including directors from many of the other divisions, 5 for actually all of the divisions, of the agency was 6 very helpful. I think the vendors appreciated that 7 very much. 8 CHAIRMAN CLOWE: That's great. 9 MS. BERTOLACINI: So everyone kind of 10 pulled together on that. 11 CHAIRMAN CLOWE: And now you're turning 12 your focus, I think, to the mentor protege program? 13 MS. BERTOLACINI: Yes. We do need to 14 get some new people into the program, and hopefully 15 we'll get at least some applicants as a result of the 16 forum. If not, I'll have to think of something else. 17 COMMISSIONER CLOWE: Okay. Keep us up 18 to date, please. 19 MS. BERTOLACINI: Okay. Thank you. 20 CHAIRMAN CLOWE: Thank you. 21 Now, Mr. Deviney, I believe the next 22 item is yours as well, No. Six: Report, possible 23 discussion and/or action on the agency's contracts. 24 MR. DEVINEY: Commissioners, again, I'm 25 Lee Deviney, financial administration director. You 0020 1 can refer to tab six in your notebook to review the 2 weekly status report on Lottery Commission contracts 3 having an estimated value of $25,000 or more. If you 4 have any questions, I'll either attempt to answer them 5 or we have representatives of the administering 6 divisions here. 7 CHAIRMAN CLOWE: I believe there are 8 none. 9 We'll move to Item No. Seven: Report, 10 possible discussion and/or action on the agency's 11 financial status. 12 MR. DEVINEY: Under tab seven, 13 commissioners, entitled agency financial status, you'll 14 find a report on transfers made to the foundation 15 school fund and allocations of unclaimed prize money. 16 The May transfer to the foundation school fund will 17 amount to $87.7 million. Behind the transfer report, 18 you will find a report of lottery's revenues 19 expenditure and transfers from fiscal year 1992 to 20 date. Total transfers to the state amount to $11.5 21 billion through the end of May of this year. 22 Next you'll find a blue divider page and 23 behind that you will find a new budget report that you 24 have not had in your notebook before. This particular 25 budget report is styled in what I call general 0021 1 appropriations act format. This is the format whereby 2 appropriations are made to the Lottery Commission. One 3 note I will make on this report is the column titled 4 expenditures is expenditures to date plus accruals on 5 major contracts. Sometimes they can be significant and 6 the attempt here was to give you a truer picture of 7 where we are with our expenditures at a point in time, 8 that being the May 31st, 2004. 9 Finally, behind that report, you will 10 find the standard method of financing and object of 11 expense budget report that you've had in your notebooks 12 at least since I've been at the Lottery Commission, 13 and, again, the period I'm shown there is from 14 September 1 of this year through May 31st of this year, 15 so just a couple of different looks on our agency's 16 budget. We're in good shape right now with the budget. 17 We're, you know, under budget right now and we should 18 remain under budget at the end of the fiscal year. 19 Finally, on your table, or in your stack 20 of stuff, you'll find a letter from the legislative 21 budget board and the governor's office of budget and 22 planning. That letter is dated June 16th. On that 23 date the legislative budget board and the governor's 24 office of budget and planning sent a joint policy 25 letter to state agencies and institutions of higher 0022 1 education directing agencies to develop baseline budget 2 requests for the fiscal year 2006, 2007 biennium, and 3 the formula that we are to use is, we are to request in 4 our baseline budget request no more than 95 percent of 5 the sum of our -- what we will expend in fiscal year 6 2004 plus what we will budget for fiscal year 2005. 7 The impact of this policy letter could 8 be a reduction in the lottery portion of the agency 9 baseline budget request of maybe $3 million for the 10 next biennium. That amount will vary depending on our 11 lottery sales and our expenditures through the end of 12 this fiscal year and what we anticipate next fiscal 13 year. With our sales moving the way they are, it's 14 kind of a moving target, so call that a ballpark 15 number. The impact on the Charitable Bingo Division 16 budget is uncertain. The impact depends on whether the 17 appropriation for bingo prize fee allocations to local 18 units of government is included in the formula. About 19 80 percent of bingo's appropriation is actually 20 passthrough money. It's prize fees that they collect 21 and then allocate back out to local units of 22 government. Staff has been in touch with the staff, 23 the legislative budget board, and the governor's office 24 of budget and planning. We had some questions on how 25 to apply this policy letter, and we'll report back to 0023 1 you as we work through that process. 2 CHAIRMAN CLOWE: Any questions? 3 COMMISSIONER COX: I have a couple of 4 comments, Mr. Chairman. 5 CHAIRMAN CLOWE: Yes, sir. 6 COMMISSIONER COX: Lee, on the report 7 that is new here, this budget report, it was my 8 understanding when we discussed this that, while this 9 wouldn't set out any variations, if you will, that each 10 month when you present it, if you see any difficulties 11 there, any matters that might be of concern as to 12 whether we're going to be within our appropriation or 13 the like, that you'll call those to your attention. 14 MR. DEVINEY: Yes, sir, I will. 15 COMMISSIONER COX: Okay. So since you 16 didn't, I'm assuming that we don't have any of those 17 kinds of things? 18 MR. DEVINEY: We don't have any 19 immediate problems in terms of going over budget. 20 Although, I will say with the bingo division, it's 21 always very tight. We manage to a much finer degree 22 for bingo than we do for the lottery. I mean, it's a 23 smaller budget, and so, you know, but we're in good 24 shape right now. 25 COMMISSIONER COX: And, secondly, Mr. 0024 1 Chairman, I don't know whether there will be another 2 place to talk about this or not, but as far as the 3 transfers, I got a copy of an audit report that was one 4 of the cleanest ones I've ever seen on the job that Lee 5 and his folks are doing on these transfers, and I want 6 to compliment you on that. 7 MR. DEVINEY: Thank you. And I pass 8 that compliment on to our general ledger staff; they do 9 the work. 10 CHAIRMAN CLOWE: Very good. Anything 11 further? 12 COMMISSIONER COX: No, sir. 13 CHAIRMAN CLOWE: Thank you, Lee. 14 Now we'll move to Item Number 8: 15 Report, possible discussion and/or action on the 16 Commission's online lottery games. 17 Mr. Tirloni and Ms. Jambor and 18 Mr. Martin. 19 MR. TIRLONI: Good morning, 20 Commissioners. For the record, my name is Robert 21 Tirloni. I am the online product marketing coordinator 22 for the Texas lottery. 23 MS. JAMBOR: Good morning, 24 Commissioners. For the record, my name is Liz Jambor. 25 I'm the senior market research specialist and acting 0025 1 instant product manager for the Texas Lottery 2 Commission. 3 MR. MARTIN: And I'm Steve Martin, the 4 marking director for the Lottery Commission. 5 MR. TIRLONI: Commissioners, the 6 presentation this month will have a slightly different 7 look and feel as we try to move towards more of a sales 8 presentation as opposed to a direct comparison between 9 Lotto Texas and Mega Millions as you've seen in the 10 past. That being said, due to the current performance 11 of the jackpot games, there is a focus, a continued 12 focus, this month on both of those games and the 13 jackpots that have been generated, but per your 14 direction last month, we are taking steps towards 15 broadening this presentation for you on a monthly basis 16 to encompass all of our products and product lines. 17 Though this has already been discussed, 18 I'll start with a brief jackpot update. Since we last 19 met in late May, the Lotto jackpot continued rolling 20 from $70 million and reached the all-time record of 21 $145 million. The jackpot winning ticket was sold in 22 El Paso for the June 19th drawing. That was a cash 23 value option ticket and it is worth approximately 24 $82.6 million. The retail location in El Paso that 25 sold that ticket, the Downtown Chevron, is eligible for 0026 1 a $500,000 retail bonus. Mega Millions continued 2 rolling from late May where it was at $42 million and 3 due to the roll last night, we are currently 4 advertising a Mega Millions jackpot of $280 million for 5 this Friday's drawing. 6 We talked a little bit about this during 7 Lee's sale's report. This is a chart representing the 8 record sales week, the $122.5 million sales week for 9 the week ending June 19th, and as was discussed, you 10 see Lotto Texas in the lead for that week with sales 11 over $57.5 million and instants right behind it with 12 sales of $46.5 million. The good news, and this was 13 touched on earlier, is that every single product this 14 week had an increase in sales from the previous week 15 except for Pick Three, which saw a very slight decline. 16 So the good news is, even though Lotto Texas was at 17 record highs, the spending did not shift to Lotto Texas 18 away from the other products, but the spending was 19 spread amongst all, and almost all, as I said, except 20 Pick Threes saw an increase for that week. 21 This is the third -- the week of 22 June 19th was the third highest sales week in the 23 history of the Lotto Texas game. The weekly sales for 24 Lotto were $57.4 million. Due to the fact that Mega 25 Millions was pretty much pacing the Lotto Texas rolls 0027 1 towards the end of the Lotto roll cycle, I believe 2 that's the reason for the sales coming in in the rank 3 of number three, or in third place. Looking at some 4 sales trending on Mega Millions, if Mega Millions was 5 not as high, I believe that the week ending June 19th 6 would actually have had the second place slot. 7 This next slide is just to provide a 8 brief snapshot on where we are on our big jackpot games 9 in Texas for calendar year 2004. We rarely talk about 10 calendar year sales at the lottery, but to provide you 11 a brief snapshot and include Mega Millions, it would 12 not be fair to talk on fiscal year terms since Mega 13 Millions and Megaplier started in December, so just to 14 give you a quick brief snapshot of where we are through 15 26 weeks, Lotto Texas is $291.4 million; Mega Millions 16 is $120.7 million; and Megaplier is right under $30 17 million for calendar year to date. 18 We've looked at this slide regularly. 19 Our total Mega Millions sales -- and this is from when 20 the game started in December -- total over $145.3 21 million. Megaplier continues to do well and it's over 22 $36.4 million for a total of over $181.7 million. 23 COMMISSIONER CLOWE: Chairman, can I ask 24 a question? Yes. 25 COMMISSIONER COX: Robert, on the last 0028 1 slide, how does the -- what is the total there? It 2 looks like it's about $440 million or so, and how does 3 that compare to the previous -- the same period of the 4 previous year? 5 MR. DEVINEY: For calendar year -- 6 COMMISSIONER COX: Just compare it to 7 what Lotto Texas was, I guess, last time. 8 MR. DEVINEY: The third tier prize, 9 which is a $5,000 prize, we have had 241 winners in 10 Texas and 62 of those Megaplier. 11 We've looked at this graph in the past 12 as well. This is charting our Mega Millions and 13 Megaplier sales. This is the $100 million jackpot on 14 Mega Millions, the 121; this is the 150; and this is 15 the 177, which was as of last Friday, you see the rapid 16 growth in the sales. And on the Megaplier side, the 17 trending continues as we've seen it in the past. It's 18 been pretty consistent. Sales are good. For this week 19 combined, these are two -- these are two drawings, but 20 for the week combined, we're looking at one point -- 21 almost $1.7 million in sales, and last week for the 22 full week, we were looking at just under $2 million in 23 sales for Megaplier alone. 24 And the percentage of sales that 25 Megaplier is contributing has continued to remain 0029 1 consistent, right around 20.1 percent of the total 2 Megaplier sales. I'll make note of what I have in the 3 past, that, as the jackpots climbs to the levels that 4 we're currently at, we do see a decrease in the 5 percentage of Megaplier spending and we would attribute 6 that to probably two reasons, people that play on a 7 regular basis and spend on Megaplier when the jackpot 8 gets to these large levels, it seems like they may take 9 that dollar that they may have spent on their Megaplier 10 purchase and apply that just to the base game. The 11 other factors is, probably people that are coming into 12 the game that don't play regularly may not be familiar 13 with the Megaplier feature yet and they're probably 14 just spending on the base game as well. 15 I'm still managing to fit all of these 16 onto one slide. I don't know how much longer I'll be 17 able to do this, but this chart actually shows the 18 progression of Lotto and Mega Millions since November, 19 and you see all of the jackpot rolls. This is when 20 Mega Millions first started in Texas in December. This 21 was the current Lotto Texas roll cycle -- I 22 apologize -- not the current cycle, the cycle that just 23 ended on June 19th, and this is the Mega Millions roll 24 cycle that we are currently in. And as I said earlier, 25 you can see towards the end of that Lotto Texas roll 0030 1 cycle, the lines overlap and so there was -- as I said, 2 Mega Millions was pretty much keeping pace with Lotto 3 toward the end of its roll cycle. 4 Another slide we've looked at pretty 5 regularly, and overall, all of the 11 states, their 6 draw sales in this current roll cycle, again this chart 7 ends as of the end of last week when we were at 177. I 8 will update it for you for the next meeting. Kind of 9 this teal-colored line is Texas. You do see that New 10 Jersey starts to edge a little bit in front of us 11 around these jackpot levels. That usually doesn't 12 happen until a bit further on. I will attribute that 13 to the fact that Lotto Texas at this point in time was 14 in the 80's for the jackpot level, and so I would 15 imagine that we've had players that may normally play 16 Mega Millions that were spending more on Lotto during 17 that time period and that's why we may have fallen down 18 a little bit on our Mega sales in this range at that 19 period of time. 20 MS. JAMBOR: This is a slide that we 21 have seen month to month, and it directly points to 22 your comment earlier Commissioner Clowe about recovery. 23 We can see that in a fiscal year to fiscal year 24 comparison of the first 43 weeks of each year, Lotto 25 Texas has experienced a 3.6 percent sales shift. Last 0031 1 month when I showed this slide, the sales shift was 2 almost 25 percent, so it really does show the impact of 3 having a higher level jackpot in the game. 4 When we look at -- 5 CHAIRMAN CLOWE: Let me ask a question 6 at this point. We had a prediction for what we thought 7 that number might be in the, quote, long run, whatever 8 the long run might be. Last month we were probably 9 above that number and this month we're probably below 10 that number. Do you still think that, when we get to 11 the long run, whenever that is, we will be about the 12 20 percent that you originally predicted, or have you 13 revised that view at this point? 14 MS. JAMBOR: Based on the most recent 15 performance of Lotto Texas, I think that we're going to 16 be right about at that predicted number. Of course, 17 we'll look at it at the end of the fiscal year, but I 18 think the truer picture will be a full 12 months of 19 Mega Millions because it will have had -- it will have 20 been a full-year impact on Lotto Texas. It also gives 21 Lotto Texas a chance to perform hopefully again like it 22 just did. 23 CHAIRMAN CLOWE: And I guess another 24 question that might better express what I was trying to 25 get at was: Clearly, this Lotto Texas jackpot level 0032 1 was one of the goals that we had for new matrix to 2 generate a very high jackpot. 3 MS. JAMBOR: That correct. 4 COMMISSIONER CLOWE: Is the matrix 5 generating the size of jackpots that we expected that 6 it would at this point in its history or is it way 7 above or way below at this time? 8 And maybe that's for you, Robert. 9 MS. JAMBOR: I'm going to let Robert 10 answer that. 11 MR. TIRLONI: When we changed the lotto 12 matrix in May of 2003, I believe we said that we 13 wanted -- we expected to see about three or four 14 jackpots over the $60 million range in a 12-month 15 period, so for the 12-month period that would have 16 ended in May, I'd have to go back and actually look at 17 all the roll cycles, and I can do that, but I believe 18 based -- but I believe, based on this jackpot roll 19 cycle, the matrix is performing as we expected and it's 20 generating the type or the level of jackpots that we 21 anticipated and wanted to bring people into the stores 22 and to generate the type of sales that we saw for the 23 week of the 19th. One roll cycle such as this 24 practically helps us make our numbers for the entire 25 year. 0033 1 CHAIRMAN CLOWE: If you would check that 2 because if -- 3 MR. TIRLONI: I most definitely will. 4 COMMISSIONER CLOWE: -- if it's 5 performing just about as expected and we're almost even 6 with last year, then things are going quite a bit 7 better than we had expected. 8 MR. TIRLONI: I will go back and look at 9 the May to May time period for you and let you know 10 what the -- what the number of jackpot levels were 11 reached. 12 CHAIRMAN CLOWE: Great. 13 MS. JAMBOR: Okay. Again, this is a 14 slide that we see month to month. We're looking at the 15 pre and post Lotto Texas sales with Mega Millions as 16 the midpoint, so we're looking at 30 weeks prior to 17 Mega Millions starting and 30 weeks post Mega Millions 18 starting, and, again, based on the performance of Lotto 19 Texas recently, we're seeing a 27.8 percent increase in 20 Lotto Texas sales. Last month when we showed this same 21 slide, we saw a 2.1 percent decrease in Lotto Texas 22 sales, so again, having that higher level jackpot is 23 very significant to the game. 24 Robert alluded to this earlier, as did 25 Lee, so we're looking at sales for online and for 0034 1 overall games FYO three to FYO four in the first 43 2 weeks of weekly sales. For online games, we're seeing 3 a 17.6 percent increase from FYO three to FYO four. 4 Last month when I reported this number, it was a four 5 percent increase, so again, Lotto Texas really has 6 impacted online sales. For overall sales FYO three to 7 FYO four, we're seeing a ten percent increase. Last 8 month when we reported this number, it was 5.5, so 9 again, Lotto Texas really has made an impact on our 10 overall sales. 11 This is also a slide, and as with 12 Robert, I don't know how much longer I'm going to fit 13 this on here, but what we get to see are sales related 14 to jackpots for both Mega Millions and for Lotto Texas, 15 and if you -- you can see here sales for the $120 to 16 $145 million jackpot for Lotto Texas are significantly 17 higher than the Mega Millions' $150 million to 18 $177 million jackpot week. And it goes back to what 19 Robert and I discussed last month is that players are 20 seeing the games in two different lights. Lotto Texas 21 is the instate jackpot game. Its performance at a 22 triple digit jackpot is much more significant than Mega 23 millions at this point in time. 24 And as we've talked about before, with 25 an increase in game variety and choice comes an 0035 1 increase in sales, and this is not only with online 2 games, but also with instant games. More dollars are 3 being generated by the Texas Lottery with the inclusion 4 of Mega Millions. The more dollars that we generate 5 means that there's more money that we can return to the 6 state. 7 (Court Reporter Arrived) 8 CHAIRMAN CLOWE: Liz or Robert, I was in 9 Tyler last week and stopped in at one of our retailers, 10 and this was at a time when both Mega Millions and 11 Lotto Texas were at very high levels, and asked the 12 lady behind the counter if she was selling more of Mega 13 Millions or was she selling more of Lotto Texas, and 14 she said, "Oh, we're selling a lot more of Lotto Texas; 15 people don't trust that Mega Millions". And I said, 16 "oh, really, why is that?" She said, "Well, they had a 17 $230 million jackpot and the guy that won it only got 18 $9t0 million and that's because all ten states have to 19 cut the pot." And I said, "I see." 20 So, I wonder how many people out there 21 believe stuff like that and what we might be able to do 22 to paint a better face on Mega Millions than it may 23 have at least at that one point in Tyler, Texas. 24 MS. JAMBOR: Well, from our most recent 25 player research when we were looking at Lotto Texas and 0036 1 Mega Millions, we did hear a lot of issues of distrust 2 of Mega Millions because they're unaware of where the 3 money goes. If you back up and think about that, the 4 majority of players are unaware of where Lotto Texas or 5 Pick Three or instants moneys go. Having a game that 6 is played with a lot of other states compounds that 7 misunderstanding. One of the things that we have added 8 to information related to Mega Millions is -- and let 9 me get the line exactly right -- 10 MR. TIRLONI: The line we used when we 11 launched Mega Millions and that we continue to use when 12 we advertise it is, "Mega Millions' proceeds benefit 13 Texas," and we're continuing to work on our language of 14 how we can improve the message about where not only 15 Mega Millions proceeds go, but where Lottery proceeds 16 go in general. Per your direction last month, we're 17 continuing to look at that, but that's the language 18 that we used when we launched the game and we continue 19 to use. 20 I've heard from marketing and sales 21 staff in a lot of other states that not only have a 22 Mega Million games, but also the Power Ball Game for 23 that matter, that there is a lengthy education process 24 when you introduce a multistate game, not only amongst 25 the public, but, as your example shows, Commissioner 0037 1 Cox, but against the retailers as well. There is a 2 miscommunication and misinformation about proceeds from 3 the game. We continue to try to get the message out to 4 players and we will work with the Lottery sales force, 5 actually, and see if we can't do a special piece or a 6 special educational brochure that can maybe address 7 that at the retail level with the clerks and the people 8 that are actually selling the tickets every day. 9 COMMISSIONER GREER: I'd like to say 10 that I run into the same thing on a regular basis, and 11 when I bring up the point that a Mega Millions dollar 12 brings them 38 cents and a Megaplier dollar brings them 13 46 cents to the fund, it totally changes their whole 14 perspective, so it's a challenge that I also am 15 accepting. 16 COMMISSIONER CLOWE: Those are, I think, 17 even higher than Lotto Texas? 18 COMMISSIONER GREER: Yes, sir. 36 cents 19 on the dollar on Lotto Texas. 20 COMMISSIONER CLOWE: That's a very 21 succinct message and it seems like that one would 22 really help. 23 MR. MARTIN: Mr. Cox -- Steve Martin, 24 for the record -- in the next item, I was going to 25 address this as well, but we do have message options 0038 1 and ideas on, not only proceeds benefitting Texas for 2 Mega Millions, but also for contributing to the 3 foundation's school fund. We are looking at that, and 4 when we get that back, we'll be looking at other ways 5 to include that message. 6 COMMISSIONER GREER: I'm going to pick 7 up the presentation at this point. If we could turn 8 the lights on so I can see a little better, I'd 9 appreciate it. One of the things when we got -- 10 COMMISSIONER CLOWE: The court reporter 11 is here. Good Morning. We understand that you were 12 misinformed or some problem occurred, but you are able 13 to go forward on a transcript. 14 THE REPORTER: Yes. 15 COMMISSIONER CLOWE: Commissioner Cox is 16 on my left; Commissioner Olivera is on my right; My 17 name is Tom Clowe. 18 We will now go onto a transcript and off 19 of the audio transcript. 20 MS. KIPLIN: Mr. Chairman, I've asked 21 Phillip to continue the audio because we'll need to -- 22 COMMISSIONER CLOWE: By all means. 23 COMMISSIONER GREER: When we got into 24 Mega Millions, one of the things that came up in the 25 process of looking from a contractural perspective at 0039 1 how we're going to proceed with the game was that I 2 would come back to you in six months, which is now, and 3 give you an overview on four specific issues that we 4 had concerns about, so I wanted to give you a brief 5 update on that right now on each one of these issues. 6 Obviously, extremely pleased with the 7 way the game is performed, reaching a $230 million 8 level, paying $239, now we're at the $280 level. I've 9 got an e-mail here from the president of Mega Millions 10 right now. They're, you know, very excited about 11 what's going on across the state and we're keeping in 12 touch on a daily basis as we reach these higher levels. 13 What I wanted to let you know was, first 14 off, on the shared prize liability, that the main 15 premise of the concept was to ensure that no Mega 16 Millions property loss, party lottery, there is a 17 disproportionate share of prize liability for the 18 payment of prizes at the second through ninth prize 19 levels. That was something we spent quite a bit of 20 time talking about. Working with Lee and his staff, 21 Ben specifically, the process has worked well and there 22 have been no problems in determining liabilities or 23 transferring funds between the party lotteries to 24 reconcile due to or due from accounts. There is an 25 annual reconciliation, and at any time one party 0040 1 lottery has a due from, the other party Lottery is 2 exceeding $1 million, there's a special reconciliation. 3 After each reconciliation, part of the lottery funds 4 are wired to or from the Lottery effected through the 5 Virginia Lottery Clearinghouse. This transfer must 6 happen within 30 days, but actually occurs within just 7 a few working days. Due to the Texas Lottery 8 participation in the Mega Millions game, 9 reconciliations are occurring on a more frequent basis. 10 The Mega Millions Finance Committee is 11 considering proposing a change to the current process. 12 The proposal would increase the fixed prize settlement 13 threshold to $1.5 million. The Texas Lottery 14 Commission Financial Administration Group has looked at 15 this and the staff does not have any objection to 16 raising this threshold. The Mega Millions director 17 would need to agree and the game agreement and finance 18 operating procedures would also need to be amended. 19 I'm going to keep y'all updated as we move through that 20 process on this issue as this proposal is being 21 considered and reviewed by the Mega Millions directors 22 as a whole. 23 Lastly, on this issue -- not on this one 24 -- the other issues, after every jackpot was hit, the 25 party lotteries reconcile the liability of jackpot 0041 1 prize and there has been no issues with the jackpot 2 prize liability reconciliation so far, so in the first 3 six months, that issue is going smoothly. The second 4 issue is audit standards, and Catherine worked on this 5 with me. Thank you, Catherine. My goal pertaining to 6 this issue was to ensure that the audit standards 7 currently being employed by the Mega Million party 8 lotteries would become more uniformed. I've been 9 working with Lee and also with Catherine to strengthen 10 the current audit guidelines and requirements among the 11 Mega Millions states. I'll be recommending that there 12 will be a new establishment of an audit committee of 13 Mega Millions. This committee would serve the director 14 of the member lotteries by reviewing financial 15 information, the systems of internal controls, and 16 audit process. This committees would also set 17 guidelines and requirements for audits. And at the 18 last Mega Million meeting that I went to, which was in 19 Baltimore, I raised this issue; it was well received, 20 positively received by the other directors, and I'll 21 continue to pursue the establishment of this committee 22 and keep you updated on the progress on that. 23 The next issue I worked with Mike 24 Pitcock [phonetic] and Mike Anger -- thank you for your 25 help on this issue -- which is validation requirements. 0042 1 When we joined Mega Millions, we knew that one size 2 fits all written into the guidelines for validated 3 grand prize and jackpot tickets across the country 4 would be a challenge due to our more advanced 5 validation systems here in Texas. My goal was to 6 streamline these requirements and allow for various 7 types of security and acceptable validation 8 requirements from state to state depending on the 9 technology used in that particular jurisdiction. The 10 Texas Lottery currently meets the procedural 11 requirements for validating Mega Millions tickets. We 12 continue to work with the Mega Millions committee that 13 is reviewing the validation procedures, and agency 14 staff has provided input to this committee and has 15 served as a resource by helping to educate the other 16 states in what we do here in Texas. I'm sure that this 17 committee will continue to review ticket validation 18 issues and comfortable with our current advanced 19 practices in Texas. 20 Lastly, I've worked with Kim and Andy in 21 legal and they been extremely helpful on getting 22 information about relative documents. I want to update 23 you that, as of today, the Texas Lottery went into the 24 whole scenario of obtaining relative documents from 25 other states involved in Mega Millions, and in talking 0043 1 to Kim just recently, we have received the documents 2 that we were looking for. At the time we joined Mega 3 Millions, it was my understanding that there was some 4 contractural documents that were entered into, one or 5 more by the Mega Millions states, and for reasons of 6 security, they wouldn't provide them to us, going back 7 to what we talked about initially, and entirely was 8 included in the multistate lottery ring as signed by 9 the party lotteries. Staff has some concerns and 10 continues to monitor the issue of where they're housed, 11 particularly since Texas continued to received signed 12 originals several months after our agreement was signed 13 in October. We are going to continue to pursue this 14 issue with fellow Mega Millions directors in 15 coordination with the agency's legal staff and we'll 16 also update you on that issue. 17 As recently as yesterday, in reference 18 to three out of those four, I received an update from 19 the finance committee chairman, which is Dennis Kennedy 20 from Ohio. He continues to work with us on proposals 21 and things that we brought to the table, and in a 22 favorable way, we're moving forward on many of the 23 issues. 24 So, overall, I wanted to let you know 25 the first six months is going well. Overall, the 0044 1 jackpot levels have exceeded my expectations, I will 2 say. It's kind of a new game and there's still a lot 3 of education process, which we touched on with your 4 example in Tyler, but when you look at the overall 5 perspective of what it's done to the Texas Lottery, and 6 more specifically to the on-line games, it's very 7 positive. 8 COMMISSIONER CLOWE: Any questions? 9 Thank you, Reagan. 10 MR. TIRLONI: I have one last slide, 11 commissioners. This is just a brief update on our 12 Megaplier drawing. When Megaplier started in 13 conjunction with the Mega Millions game, it started as 14 an animated digital drawing, and I just wanted to 15 update you and let you know that we are considering 16 possibly animating some of our other on-line game 17 drawings. We're right at the beginning stages of that, 18 looking at it and researching it, and so we wanted to 19 bring that to your attention today, that we are 20 considering that, and we will continue to update you as 21 we move along in that process. 22 COMMISSIONER CLOWE: Robert, if you 23 know, or Catherine Melvin, if you know, how do the 24 auditors, the independent auditors, that certify our 25 drawings certify an animated drawing? 0045 1 MR. TIRLONI: I don't know the complete 2 answer off the top of my head. I wouldn't want to give 3 out incorrect information. 4 COMMISSIONER COX: Let's be sure as we 5 go forward that we're not doing something that can't be 6 audited. 7 MR. TIRLONI: I do know that those -- I 8 do know that the internal auditors are a part of that 9 entire Megaplier drawing from start to finish. While 10 it is animated, it is treated as a -- just as the 11 regular ball sets machine, the traditional drawing 12 machines. It's treated as the same way. An auditor is 13 present through the whole process, and I know that just 14 from being in the -- just from being in the studio and 15 just watching the process, but to detail steps for you 16 right now, I cannot do that at this time, but they do 17 treat it as any of the other on-line game drawings. 18 They have their checklists and their processes. 19 COMMISSIONER COX: Except they can't 20 count the balls beforehand and they can't weigh the 21 balls and they can't be sure all the balls are put in 22 the hopper and those kinds of things they traditionally 23 do, so what do they do instead of that to ensure the 24 setup is proper, is my question. And, Catherine, that 25 may be for you and it may be for the next meeting, but 0046 1 I'd sure like to know how that works. 2 MR. TIRLONI: We can provide you an 3 update on that for the next meeting and give you more 4 detailed information about the entire process from 5 start to finish during the draw. 6 MR. GREER: And we'll be glad to do 7 that. Security has a key role in that whole process 8 and I've been at the drawings with the auditor, and 9 there is a specific guideline grouping that they follow 10 as they move through that, and that would be a good 11 thing to bring to the attention of the commission. 12 COMMISSIONER CLOWE: And along that 13 line, Robert -- and it may be a question that Lee can 14 answer -- what's the length of the contract with the 15 firm that runs our drawing studio at this time? 16 MR. TIRLONI: I believe that contract 17 for MNS Works, which is the drawing production vendor, 18 I believe that contract has been extended through March 19 of 2005. 20 COMMISSIONER CLOWE: So not quite a year 21 left? 22 MR. TIRLONI: That's correct. 23 COMMISSIONER CLOWE: And then will we be 24 going out for a new contract prior to that time? 25 MR. TIRLONI: We are -- there is a -- 0047 1 there is a RFP committee in place for that contract 2 right now as we speak, and we have been working on 3 that. I am on that committee and we have been working 4 on that for some months. 5 MS. KIPLIN: Commissioners, in the 6 notebook under the agency's contractors, there is a 7 report that does indicate the drawing studio production 8 services expiration date is March 1, 2005, so Mr. 9 Tirloni has figured off the top of your head. The 10 administering division has ordered the draft request 11 for proposals to the legal division and that contract 12 was extended to March 1, 2005. 13 COMMISSIONER CLOWE: So, I was just 14 thinking about, as you were talking about automation, 15 you know, the equipment and the technical expertise 16 that we have in place and how that relates to 17 Commissioner Cox' question and what other lotteries are 18 doing to make these drawings more eventful. 19 MR. GREER: And I'd like to add 20 something that the deputy executive director and I have 21 been working on as well and we're going to continue to 22 monitor what goes on in other states and look at how 23 that affects the Texas Lottery, and we'll be bringing 24 you more information in the coming meetings on that. 25 COMMISSIONER CLOWE: Very good. Any 0048 1 further comments or questions? Thank you all very 2 much. 3 Steve, I believe you indicated you have 4 the next item. Item No. 9: Report, possible 5 discussion and/or action on lottery advertising and 6 promotions. 7 MR. TIRLONI: Yes, sir. Commissioners, 8 for the record again, my name is Steve Martin, 9 marketing director for the Texas Lottery Commission. 10 I'd like to give you an update on the agency's 11 advertising and promotions activities. 12 To maintain our recent excitement over 13 the jackpot for both Lotto and Mega Millions, marketing 14 has launched a new TV and radio advertising campaign 15 promoting the new lottery schedule for our jackpot sell 16 games now available six days per week with the move of 17 the Texas Two Step to Monday and Thursday drawings. 18 The new TV and radio slots began this past June 28th 19 and will run through July 25th. This slot has a lot of 20 energy and we're hoping to keep players enthusiastic 21 with the jackpot games after the recent $145 million 22 jackpot and with the current Mega Millions $280 million 23 jackpot. As we mentioned earlier, I just wanted you to 24 be aware that we have submitted legal referrals for 25 both options and messaging ideas for contributing to 0049 1 the foundation's school fund message and Mega Millions 2 proceeds benefitting Texas message. 3 For our FYO five marketing plan, we are 4 looking at some strategies and activities for building 5 direct response mechanisms into our mass media 6 advertising, that way we can track response and also 7 assess sales impact of our dollars, so we are looking 8 at that, and that will be built into our '05 plan. 9 Additionally, we're doing some preliminary work on the 10 contracts for the State Fair for promotions activity. 11 That's my overall update, and I would be 12 happy to answer any questions if you have any at this 13 time. 14 MR. GREER: Commissioner Cox, 15 specifically, I wanted you to be aware that, yesterday 16 afternoon, we met with DDB in reference to FYO five, 17 and one of the issues that we have focussed on and you 18 have brought to our attention is the overall 19 perspective of what are we getting as far as our 20 advertising dollar, they're focused on that. There is 21 a survey that we talked about that they're working on. 22 As a part of this process, we're going to bring that in 23 and we'll keep you in the loop as we move through that. 24 COMMISSIONER CLOWE: Now, was it one 25 time they sent down a power point and said they wanted 0050 1 to make a presentation? 2 COMMISSIONER GREER: Right. 3 COMMISSIONER CLOWE: Has that 4 presentation been scheduled? 5 MR. GREER: Liz? 6 MS. JAMBOR: One of the things that you 7 have asked for, Commissioner Cox, was to have another 8 entity review that report; you had asked the professors 9 at U.T., Dr. Hoff and Dr. Jarrett. Knowing their 10 workload and matrix of DDB's workload, we're still 11 struggling to find a meeting time. They have initially 12 reviewed the report. There are some points of it that 13 they agree with and some points of it they still have 14 questions about, and so we need to bring those two 15 groups together. My hope is, knowing their schedules 16 right now, that by the end of July, we will have some 17 type of consensus between those two groups on what the 18 analysis does show, and at that time, we can bring it 19 to the Commission. 20 COMMISSIONER CLOWE: So we'll be able to 21 have a maybe a single meeting where all question can be 22 resolved? 23 MS. JAMBOR: That is the goal. That is 24 the goal, is to coordinate those schedules so that U.T. 25 has all of their questions answered, and if there's any 0051 1 further analysis that matrix needs to provide to create 2 those answers, they can do that and then we can bring 3 the final results to the Commission. 4 COMMISSIONER CLOWE: Mr. Martin, I do 5 have a question with respect to the messaging section. 6 It refers back to Commissioner Cox' comment on the 7 retailer from Tyler. Perhaps, I don't know if a study 8 has been done in terms of educating the public as to 9 the jackpot, how the jackpot is distributed with 10 respect to Mega Millions, because I think there's a 11 distinction between educating the public where net 12 proceeds go as opposed to jackpot winnings, and I think 13 that's what his comments referred to. 14 MR. MARTIN: Right. I'll let Liz touch 15 on this, too, but in some of our focus group studies, 16 that has come up as well, but I believe that the money 17 all goes out of state. The idea with the net proceeds 18 is that, you know, the proceeds that Texas does receive 19 stays in Texas. 20 MS. JAMBOR: And I think there are ways 21 that we can educate players about where all the money 22 goes, not just proceeds, but also how prizes are 23 distributed. I think that would be important. You 24 know, I personally walk around with fingers crossed 25 every time it's a Tuesday or Friday so that there is a 0052 1 Texas winner, and that -- at that point, it's going to 2 be very easy for us to educate on where the prizes go. 3 Until then, it is a very slow process because people 4 are still learning how to play the game, how to play 5 Mega Million, how to play Megaplier, and where the 6 money goes. How prizes are distributed really is low 7 on their focus because they just want to learn how to 8 play the game, so, unfortunately, it's a time issue. 9 We have to just let the game exist for a little bit 10 longer and keep pushing the message out there that the 11 proceeds do stay in Texas and that prizes are related 12 to sales so that, as we have our sales in Texas, so 13 have -- we have prizes in Texas and it's not all the 14 money leaving the state. 15 MR. TIRLONI: If I can just add one 16 thing. What I've also heard from a lot of the other 17 Mega Millions states, Liz just touched on it, once you 18 have a jackpot winner in your state, that makes a huge 19 difference. People really then believe that somebody 20 here in Texas could win this jackpot prize and then 21 when that actually happens, there starts to become a 22 little bit more of an understanding about how the game 23 works and the fact that, you're advertising $280 24 million and there's one ticket sold and that ticket is 25 sold in Texas and that that winner or person holding 0053 1 that ticket does receive either that jackpot prize paid 2 out over 26 annual payments or as a lump sum cash 3 payment, so I think the idea of having a winner in the 4 state is very important. And a lot of states have also 5 shared with us that, once they did have a jackpot 6 winner in their state, not only did that become clearer 7 for the public and for the retailers, but their sales 8 also went up as well. 9 MR. MARTIN: And just some additional 10 ideas that we're looking at is, we have in every single 11 brochure where the money goes, that it addresses that. 12 Ideas would be to, like I say, put it on the web site 13 to have to roll down for -- you can identify where the 14 money goes for Mega Millions, that kind of thing. We 15 also have some -- there's how to play information that 16 we could add additional links there as well, so not 17 only do you learn how to play, but also where those 18 proceeds are going. We are looking into that as well. 19 COMMISSIONER CLOWE: Steve, what's the 20 anticipated advertising expenditure for the current 21 fiscal year? 22 MR. MARTIN: I don't have it in front of 23 me, but it's a total of $34 million. 24 COMMISSIONER CLOWE: That's the budget? 25 MR. MARTIN: Yes, sir. And we'll come 0054 1 in slightly underneath that. 2 COMMISSIONER CLOWE: Okay. Any other 3 questions? Thank you all very much. 4 The next Item, Item Ten: Report, 5 possible discussion and/or action on the 78th 6 Legislature and/or implementation of legislation 7 affecting the Texas Lottery Commission. Ms. Trevino. 8 Good morning. 9 MS. TREVINO: Good morning, 10 Commissioners. For the record, I'm Nelda Trevino, the 11 governmental affairs director. This morning I want to 12 provide you a brief update on two legislative committee 13 meetings that occurred during the month of June. The 14 House Appropriations Subcommittee on General Government 15 chaired by Representative Joe Picket met on June 16th 16 to discuss general budget oversights of numerous 17 agencies under the subcommittee's jurisdiction. The 18 Lotto Commission was one of the agencies considered by 19 the subcommittee, and Executive Director Greer and 20 Billy Atkins, our Charitable Bingo Director, provided 21 testimony and responded to questions from the 22 subcommittee. Included in your notebook is a copy of 23 the subcommittee meeting agenda and a copy of the 24 Legislative Budget Board's summary document presented 25 by the LBD staff at the subcommittee meeting. 0055 1 Also the House Committee on Licensing 2 and Administrative Procedures, chaired by 3 Representative Kino Flores, met on Tuesday, June the 4 1st, to discuss the use of outside counsel in 5 connection with the video lottery system in Texas with 6 representatives of the Lottery Commission and the 7 Office of the Attorney General. The committee has 8 scheduled a subsequent hearing for July the 14th at 9 2:00 p.m. to further discuss this matter. 10 Additionally, Senator Jane Nelson and Representative 11 Kino Flores requested the state auditor's office to 12 review this matter. The Commission's internal auditor, 13 Catherine Melvin, will provide you more information in 14 her report on the state auditor's review. 15 Lastly, I want to mention to you that we 16 are in the preliminary stages of planning our next 17 legislative briefing, and we will keep you apprised on 18 our progress as we move forward in scheduling that 19 briefing. 20 This concludes my report on this agenda 21 item, and I'll be happy to answer any questions. 22 COMMISSIONER CLOWE: I want to comment 23 to you that I also wrote a letter to the auditor asking 24 for that audit, following Senator Nelson's letter, 25 offering our internal audit department as a resource 0056 1 and urging that audit. I think that audit is underway 2 and I believe that, in fact, they are using our 3 internal audit office as a resource, and I'd like to 4 hear what the progress of that is from whomever and a 5 report on it, please. 6 MS. TREVINO: Yes, Mr. Chairman, 7 Catherine is going to be providing that report to you 8 and I think that's the next agenda item. 9 COMMISSIONER CLOWE: Great. Thank you. 10 MS. TREVINO: You're welcome. 11 COMMISSIONER CLOWE: So let's go to that 12 item. Agenda Item Number 11: Consideration and 13 possible discussion and/or action on the external and 14 internal audits and reviews relating to the Texas 15 Lottery Commission and on the Internal Audit 16 Department's activities. 17 And let's start with the question about 18 where we are on that audit regarding the employment of 19 the outside law firm, please. 20 MS. MELVIN: Good morning, 21 commissioners. For the record, my name is Catherine 22 Melvin, director of the Internal Audit Division. 23 There's actually two state audits ongoing at our agency 24 right now, but let me answer your first question. 25 As Ms. Trevino mentioned, the state 0057 1 auditor's office is currently performing this review 2 and this was at the separate request of both Senator 3 Nelson and Representative Flores. They are -- or, the 4 legislators have asked the auditors to look into issues 5 surrounding the outside counsel contract between the 6 Attorney General's Office and the law firm and also the 7 interagency agreement between the Lottery Commission 8 and the Office of the Attorney General. And, of 9 course, this is related to the Lottery Commission 10 serving as a resource regarding very complex gaming 11 issues and also the video lottery system in Texas. 12 The auditors are working very quickly. 13 They have a very short turnaround deadline for their 14 work. They started their work a week ago Monday and 15 are continuing this week, also. We do know that 16 they've been asked to complete their work to have ready 17 for the July 13th, the next meeting of the Sunset 18 Commission. I don't know if they'll actually give a 19 report at that meeting, but they have been asked to 20 have their results done by that day. And as she 21 stated, internal audit is their single point of 22 contact. 23 We are working very close to ensure sure 24 that they get the information that they need. They 25 actually have not asked us to perform work for the 0058 1 audit, but we certainly are playing a key role in 2 assisting them. We've met with several divisions, 3 divisions that have been involved in this process, 4 including the executive director, the deputy director, 5 and Commissioner Cox, so I think good progress is being 6 made. 7 And, Chairman Clowe, I did want to 8 mention your letter. They are in receipt of your 9 letter in which you expressed your support and the full 10 and free access to the Lottery Commission. 11 COMMISSIONER CLOWE: And have all of the 12 individuals contacted been forthcoming and is the 13 auditing group getting all of the support and 14 information they are seeking from this agency? 15 MS. MELVIN: To my knowledge, yes. 16 Unfortunately, I don't believe anybody from the state 17 auditor's office is here this morning, but that is a 18 question that I ask them regularly. 19 COMMISSIONER CLOWE: All right. Will 20 you continue to make certain that they are receiving 21 everything they need? 22 MS. MELVIN: Absolutely. 23 COMMISSIONER CLOWE: Good. 24 MS. MELVIN: While we're on the subject 25 of the state auditor's office, let me go ahead and 0059 1 mention another audit that they've actually just 2 completed. They reviewed selected controls over 3 instant tickets, and in that audit they focused on 4 controls over reconstruction, return tickets, and then 5 some tickets that are used internally for promotional 6 purposes and investigation purposes, and that audit has 7 been a long audit. Actually, I think it started almost 8 a year ago, but they've been thorough and have come up 9 with some great recommendations for the agency. We 10 have just received an initial track report, and so this 11 is the first draft we've seen, so internal audit is, 12 again, serving as their point of contact. We are 13 working with that draft to ensure accuracy. We are 14 going through and we'll be making some suggestions to 15 the auditors for their consideration on both accuracy 16 and language, so that process is ongoing, but I would 17 anticipate them really finishing that process here 18 probably sometime in July. 19 Okay. The only thing that I wanted -- 20 that I wanted to bring to your attention today was just 21 some activities of the internal audit function. Since 22 our last commission meeting, as Commissioner Cox 23 mentioned, we did issue a report on required transfers 24 to the state internal audit. Let me go ahead and give 25 you the actual objective of that audit. 0060 1 Our objective was to verify the accuracy 2 and timeliness of monthly transfers to the foundation 3 school fund for the prior fiscal year and this fiscal 4 year to date and also look at the quarterly transfers 5 of unclaimed prize money, and we're very pleased to 6 report that, based on the results of our review and the 7 testing that we performed, the financial administration 8 division is performing those transfers accurately and 9 timely. And, actually, during the review, we also 10 identified some good practices that we shared with 11 management and certainly commend this division for 12 taking initiatives and going above and beyond just 13 doing what they had to do. And we delivered that 14 report on June 15th. 15 The internal audit division also -- it's 16 very important to our division that we serve as a 17 resource to management, and so we continue to provide 18 management assistance in various activities, and I just 19 wanted to mention probably the largest of these right 20 now occupying our staff's time is reviewing the 21 enforcement processes of the Charitable Bingo 22 Operations Division. 23 And that concludes my report. If you 24 have any questions, I'd be happy to answer at this 25 time. 0061 1 COMMISSIONER CLOWE: Catherine, I have 2 received a letter from a member of the bingo industry 3 with a complaint, and I've asked you to look into that 4 and report back, and I'd like for you to make that 5 report to the commission, if you will, regarding the 6 issues raised that letter. 7 MS. MELVIN: Absolutely. 8 COMMISSIONER CLOWE: And I have 9 responded to that individual with a letter which I 10 believe you were a party to helping me prepare. 11 MS. MELVIN: Yes. 12 COMMISSIONER CLOWE: And I'd like for us 13 to move forward with that as promptly as possible 14 because one of the complaints is the length of time it 15 takes the Commission to be responsive, and in light of 16 that, tell us about your staff and if you feel that 17 you're adequately staffed now to do these tasks that 18 are coming to you. 19 MS. MELVIN: That's a good question. We 20 have a staff of three auditors, myself, Greg Royal, who 21 is here, our assistant director, and Brenda Winkler, 22 who joined somewhat recently. I have a great staff and 23 they have done some very good things and, hopefully, 24 management would share in my opinion of that. 25 I will say that, probably in the next 0062 1 month, I will be talking to you about my progress on 2 our audit plan, which was approved a little earlier in 3 this year, and the amount of requests that come in 4 sometimes supplant activities that are planned on the 5 audit plan that's been approved, and so we will be 6 talking about, you know, should we move some of those 7 activities to next year's audit plan. Things change, 8 but it is a challenge, I will have to say, in trying to 9 complete the audit plan and accept the requests that 10 come in on a daily basis, and I think one thing that 11 I've learned certainly working at the Lottery 12 Commission is that every day is different and new 13 issues come in all the time, and it's important for 14 internal audit to be ready to address those. 15 For example, the state auditor's office 16 is something I think is very important for the internal 17 audit function to be that liaison and to always work 18 with the external auditor. I feel like if someone is 19 going to come audit my agency, I want to be a part of 20 that, you know, and that's for many reasons. It helps 21 us in our risk assessment and where we want to target 22 our efforts. 23 But you asked specifically the level of 24 resources. I think now we're managing the number of 25 requests that come in; yet, I think it's a challenge 0063 1 and I think you'll see that impact on the audit plan. 2 COMMISSIONER CLOWE: I know that the 3 commissioners have asked Commissioner Cox to liaison 4 with you and deal with your issues, but I want to say 5 for myself and for, perhaps, Commissioner Olivera that 6 we want a very strong internal audit function in this 7 agency, and you've been here since, what, May of last 8 year? 9 MS. MELVIN: Yes. 10 COMMISSIONER CLOWE: And we're pleased 11 with the development of the internal auditing function 12 and we want it to continue and we do not want you with 13 a three-person staff to be in a position where too many 14 tasks come. That's a thing that would be harmful, I 15 think, to the accuracy and promptness for the 16 completion of these tasks, so I'm sure you'll be 17 talking with Commissioner Cox as this workload precedes 18 in keeping him informed so that from time to time, your 19 needs would be looked at and addressed. 20 MS. MELVIN: Thank you. 21 MR. GREER: Mr. Chairman, from my 22 perspective, I'd like to just add my appreciation to 23 the internal audit function. Having an independent 24 voice as part of the team has been very beneficial. 25 They've been a tremendous asset to us. As we continue 0064 1 to look at the scenario of these two audits that are 2 ongoing, they have been extremely responsive and great 3 as far as giving us guidance in how to move forward and 4 give the most productive information and in a timely 5 manner. I see them as a tremendous asset. 6 Again, I just wanted to thank you, 7 Catherine, and her staff, specifically Greg, for the 8 work that they're doing in reference to some of these 9 audits and give them my full support and anything I can 10 do to help along the way. We've worked very well 11 together and I'm sure we will continue to do so. 12 COMMISSIONER CLOWE: And, Reagan, while 13 you're speaking, Melvin mentioned very briefly a Sunset 14 Committee meeting on, I think, the 13th or the 14th of 15 next month, and you just mentioned it. Are you going 16 to talk about that in your report? 17 MR. GREER: I wasn't planning to. 18 COMMISSIONER CLOWE: I want to hear more 19 about that. 20 COMMISSIONER GREER: We were 21 anticipating a follow-up from our prior meeting at the 22 Sunset Commission. I don't think our specific time has 23 been posted yet. 24 Nelda, has it, in reference to our 25 Sunset Commission appearance? 0065 1 Not yet, so we'll let you know if that 2 is a part of the process. The current audit in 3 reference to the outside counsel is a key focus right 4 now because they're asking for that prior to the Sunset 5 hearing, so we'll also keep you apprised of that. 6 COMMISSIONER CLOWE: Okay. So is that 7 the subject of the Sunset Committee meeting? 8 COMMISSIONER GREER: No, sir. Well, it 9 certainly wasn't part of the conversation we had, 10 specifically with Senator Nelson, in the last Sunset 11 commission hearing, but it's an overview of the agency. 12 We gave an overview of the agency. That specific issue 13 is one thing that's being addressed, but this will be a 14 follow-up to our prior meeting, and will, you know, be 15 a decision-oriented meeting for those members of that 16 commission. Nelda can add something. 17 COMMISSIONER CLOWE: I need a better 18 understanding of what this follow-up meeting agenda is, 19 if you know. 20 MS. TREVINO: Commissioners, the Sunset 21 process, what takes place first, once the Sunset staff 22 report has been issued is, the Sunset Commission will 23 hold a hearing, a public hearing, where the Sunset 24 staff presents the report, the agency has an 25 opportunity to provide testimony to the Commission, the 0066 1 public can comment on the report. And that's what 2 occurred at the last subcommission hearing. The next 3 process, which is where we're at, is that the agency 4 goes back before the Sunset Commission and they make a 5 decision on the recommendations that have been put 6 forth by the Sunset staff, so there's no presentation 7 from the agency. 8 COMMISSIONER CLOWE: That's what I want 9 to hear. 10 MS. TREVINO: No presentation from the 11 agency. We're supposed to be there and available to 12 answer any questions that the members of the Commission 13 might have, but, again, the point that we're at in the 14 process is that they will be making a decision on the 15 recommendations. 16 COMMISSIONER CLOWE: That's just what I 17 need to hear. I'm recalling now, in the last session, 18 this was the next step, and so much of the conversation 19 was about a video lottery terminal. In our initial 20 appearance before that Commission, that's probably not 21 going to be even dealt with for this one. Is that a 22 speculation? 23 MS. TREVINO: It's, I think, a 24 speculation, Mr. Chairman. And, in fact, I was talking 25 to Clowe Lieberneck, who is here with the Sunset staff, 0067 1 and just confirming with her that, when an agency goes 2 before the Sunset Commission when they are making their 3 decisions on the recommendations, a member of the 4 Commission certainly has the opportunity to add a new 5 issue that would be included as part of their 6 recommendations that they adopt for the full 7 legislature to consider when they convene in January of 8 '05, so while the Sunset staff report is out and those 9 are the recommendations, really, that they will be 10 voting and making a decision on, there's certainly an 11 opportunity for those members to bring up any new 12 issues that they might desire. 13 COMMISSIONER CLOWE: Okay. That's the 14 comfort that I was looking for. I understand now. 15 Thank you very much. 16 MS. TREVINO: You're welcome. 17 COMMISSIONER CLOWE: Thank you, 18 Catherine. 19 MS. MELVIN: Thank you. 20 COMMISSIONER CLOWE: The next item, Item 21 12: Report -- well, let's see. We've covered that. 22 Are you satisfied or do you want to add anything? 23 MS. TREVINO: No, sir, there's nothing 24 else that I was going to add. 25 COMMISSIONER CLOWE: Then we'll go to 0068 1 Item 13: Consideration of and possible discussion 2 and/or action on the agency's business plan. Mr. 3 Anger. Good morning, Michael. 4 MR. ANGER: Good morning, Chairman. 5 Good morning, Commissioners. For the record, my name 6 is Michael Anger and I'm the lottery operations 7 director. I'm here this morning to give you a brief 8 update on the status of the agency's business plan. 9 Since my last report, we've completed 10 the draft comprehensive business plan inclusive of the 11 long-range action plans that we've been developing over 12 the last several months. The draft, which recently 13 routed for comment to the agency's division directors, 14 we'll be working over the course of the next week with 15 a consulting group to combine those comments into a 16 draft that we're going to be submitting to executive 17 management here at the agency for review. Following 18 their comment and the adoption of that language, we 19 will be forwarding a copy of the business plan for you 20 for your evaluation, and I anticipate that that's 21 probably going to be around the middle of July. 22 And that's all I have to report at this 23 time. I'd be glad to answer any questions that you 24 have. 25 COMMISSIONER COX: Michael, you said for 0069 1 our evaluation. Take me through the process that you 2 envision after you send us the report and we have time 3 to review. 4 MR. ANGER: We've had some discussions 5 internally just recently about that, commissioner, and 6 I'm in the process of communicating with the legal 7 division on what's appropriate as far as your review 8 and potential approval or adoption or just comment on 9 this particular document. 10 MS. KIPLIN: Commissioner, I think you 11 and I are losing track of the time, but I think we 12 touched on this recently in terms of the process, and 13 my sense is -- we're vetting it, but my sense is that 14 it is the agency's business plan. It is a matter of 15 importance to the agency in setting policy and 16 direction for the agency for the future, and it was a 17 Sunset Commission recommendation that the agency does, 18 in fact, adopt and implement a business plan, so with 19 that as a backdrop, I'm going to vent a little bit 20 more, but my initial recollection is that it would come 21 to the Commission and the Commission should take action 22 on it to set the policies and direction for the agency 23 in how it proceeds. 24 And with that in mind, Mr. Anger, you 25 can correct me if I'm wrong, there are no external 0070 1 deadlines on this. There are internal deadlines simply 2 to shepherd a project along the path, and so I would 3 think that the agency would -- staff would present this 4 as many times in a Commission meeting to the Commission 5 for the commissioners, the individual commissioners, to 6 deliberate amongst themselves so that there is an 7 ability to move forward based on an action and approval 8 by the Commission on that point. 9 Mr Greer, Mr. Grief, Mr. Anger, please 10 interject or correct me if you think that that is a 11 misstatement on my part. 12 COMMISSIONER GREER: I believe that's 13 correct. 14 COMMISSIONER COX: This is a very 15 important issue for the agency and I think it's an 16 opportunity. We have been working on this for quite a 17 while. We've tried to do this right, and really right, 18 and I think to shortcut the review process at this 19 point would be something we just don't want to think 20 about doing. 21 When I was on board of another agency, 22 we had a document of this importance that we reviewed 23 and we noticed up a special meeting where that was the 24 only item on the agenda so that the commissioners could 25 discuss it with the whole staff present and everybody 0071 1 could hear everybody's thoughts and we could go forward 2 from there, so if that's the kind of thing that the 3 chairman and Commissioner Olivera think would be good, 4 it certainly has that level of importance with me. 5 MR. ANGER: If it is acceptable with 6 you, what I'll do, when we have completed that final 7 draft around the middle of this next month, I'll 8 forward that to you individually, allow you to look at 9 the document, and maybe you can gauge your feelings in 10 that area, Commissioner and Chairman and Commissioner 11 Olivera, and give me some feedback as to how you feel, 12 if you're pretty satisfied with the draft as it stands 13 or if you feel that maybe it would be worthwhile for us 14 to have a group meeting to discuss that document, we 15 would be glad to work to make arrangements as well. 16 COMMISSIONER COX: I guess I didn't make 17 myself clear. I don't want to do it that way. I want 18 us, the three of us, to have an opportunity to hear 19 each other's comments. Because it may be that I think 20 everything is fine and Chairman Clowe can think 21 everything is fine and Commissioner Olivera raises a 22 question that would raise another question with him and 23 it would raise another question with me and still a 24 fourth question with you. I'd like to have a process 25 like that for us to go through. 0072 1 MR. ANGER: Okay. I'll work with legal 2 counsel on arranging that. 3 COMMISSIONER CLOWE: Well, I think I 4 understood what you said, and if you produce that draft 5 prior to our next meeting, could we use that next 6 meeting as a time where we can discuss this more fully 7 and get some understanding and maybe devoting a major 8 portion of the meeting to a discussion of it and 9 getting an agreement that defines what you're talking 10 about? Would that be a proper thing? 11 COMMISSIONER COX: Yeah, I think that 12 would work fine, Mr. Chairman, but the important thing 13 is that I don't want to review this and feedback to 14 Michael and you review and feedback to Michael and 15 Commissioner Olivera review and feed back to Michael. 16 I want us to be able to hear each other. 17 COMMISSIONER CLOWE: I totally agree, 18 and I think that once I get it in hand and have an 19 opportunity to look at it, I'll be better prepared to 20 have that I might call it a preliminary discussion in 21 the open meeting with you and Commissioner Olivera and 22 then we can have some better understanding of what the 23 time commitment and how the form might be that we would 24 adopt to achieve that discussion where the three 25 commissioners are discussing it with the staff and 0073 1 achieving the understanding that you want, and I agree 2 with what you would like to do. 3 COMMISSIONER OLIVERA: I have no problem 4 with either a single meeting for that purpose or a 5 lengthy meeting for that purpose. 6 COMMISSIONER CLOWE: And the Commission 7 can call the meeting, counselor, if I understand the 8 rules correctly. It wouldn't be a special meeting or 9 an emergency meeting, but the Commission can meet as 10 often as it choses as long as proper notice is given, 11 so we could, in fact, notice a meeting and that could 12 be the only item on the agenda and we can devote that 13 entire meeting and that portion of that day to this 14 subject if that's what we wanted to do. 15 MS. KIPLIN: Yes, sir, that's correct. 16 The Lottery Act -- pardon me -- Chapter 467 of the 17 Government Code establishes a minimum number of 18 meetings per year, but there certainly is no ceiling on 19 that. Also, if it's the Commission's desire, there is 20 not a limit on the number of meetings that the 21 Commission could have on this as a single topic. It 22 may be that you meet and you work through it and 23 direction is given to the staff, you get the draft 24 back, and there may be some disconnects, 25 miscommunications, and you want a series of meetings to 0074 1 where you are comfortable with that document. 2 COMMISSIONER GREER: And I'd like to add 3 something. One of the, I think, very positive aspects 4 of how this came together was that we worked with some 5 outside consultants at some day-long retreats away from 6 here as a group with the directors. I think it would 7 be good if they were available also to give you a 8 little overview of some of the in-depth aspects of how 9 this plan came together. 10 COMMISSIONER CLOWE: Did I read in the 11 Wall Street Journal that Professor Kayton Head was 12 appointed CEO of Schlotzsky's? 13 MR. ANGER: I believe he was named 14 chairman. 15 COMMISSIONER CLOWE: Chairman of the 16 board. And chief executive officer? 17 MR. ANGER: I'm not certain about that. 18 COMMISSIONER CLOWE: Well, I would like 19 to discuss with him in the open meeting some of those 20 sandwiches that they're making. You know, that was 21 really interesting. Here's a guy who is a teacher at 22 the University of Texas, and I attended some of your 23 sessions and I met him, and then I read about that; 24 that is very interesting to me. As I read in the 25 article, two of the brothers that started that company 0075 1 left the company and there he came in as chairman -- 2 or, I thought he was CEO. I think, he's running it. 3 MR. ANGER: I have that sense as well. 4 I didn't see that title. I read that article locally, 5 Chairman, but my understanding is that he joined the 6 board of Schlotzsky's maybe a couple of months ago, and 7 with the departure, I believe he was named chairman and 8 possibly CEO. I'm not certain about that. 9 COMMISSIONER CLOWE: Pretty strong. 10 Well, we'll look forward to that as sort of a little -- 11 maybe he'll bring some sandwiches. 12 MR. ANGER: I'll follow through as y'all 13 have indicated. 14 COMMISSIONER CLOWE: He can't bring 15 sandwiches. 16 This would have to be a good time to 17 take a short recess, just maybe ten minutes. 18 (A short break was taken.) 19 COMMISSIONER CLOWE: We'll take up Item 20 No. 14: Report, possible discussion and/or action, 21 including adoption, on the agency's strategic plan. 22 Mr. Grief. 23 MR. GRIEF: Good morning, Commissioners. 24 Today we are seeking your formal approval of the 25 agency's strategic plans for fiscal years 2005, 2009. 0076 1 The strategic plan is a document required by the 2 legislature every two years from all state agencies and 3 it is intended to be a long-term formal document that 4 communicates an agency's goals, direction, and outcome 5 for various audiences, including the government, the 6 legislature, our constituency groups, our clients, the 7 general public, and the employees of the agency. This 8 document will serve as the foundation for the agency's 9 strategic planning and budget structure, through which 10 the agency will ultimately develop our legislative 11 appropriations request, and that will reflect the 12 decisions of the agency regarding how our fiscal 13 resources will be spent. The strategic plan outlines 14 our agency goals, objectives, and produces strategies 15 for the agency to follow in order to achieve those 16 goals. 17 Our 2005, 2009 plan is the result of na 18 elaborative process that spans several months and 19 involves staff from all areas of the organization, 20 including senior and middle management from both the 21 Bingo and the Lottery Divisions and designated liaisons 22 in each division who had the responsibility for 23 providing content of the plan from their respective 24 departments. In October of 2003, and I designated Ms. 25 Karen Blizzard, the marketing division senior editor, 0077 1 as the project manager for the development of our 2 strategic plan. Karen then put together a detailed 3 work plan time line and she launched the project agency 4 wide. 5 As we developed our strategic plan, we 6 also worked very closely with Michael Anger, our 7 project manager for the agency's business plan, which, 8 unlike the strategic plan that is required by the 9 legislature, the business plan is being developed in 10 concert with a recommendation from the Sunset 11 Commission, and we have ensured, as we developed this 12 strategic plan, that there will be consistency between 13 it and the ultimate agency business plan. 14 One highlight of the strategic plan that 15 I want to bring to your attention this morning is a 16 significant change in manner in which our agency's 17 budget structure has been presented. The proposed new 18 budget structure provides more transparency regarding 19 the agency's expenditures and it's also much more in 20 line with our current agency business alignment. As 21 approximately 75 percent of our agency's expenditures 22 are tied up in major contractural obligations, we 23 sought the advice from the staff from the governor's 24 office of budget and planning policy as well as staff 25 from the legislative budget rule, and with their input, 0078 1 we have developed a budget structure that lays out 2 these major contractural obligations as individual 3 strategies and then related performance measures to go 4 along with those strategies were also remapped to make 5 them consistent with the new approach. 6 What you have before you today is the 7 result of a lengthy process that included several 8 formal meetings that were convened as part of our 9 long-range planning process along with many smaller 10 work group meetings that took place, and the focus of 11 those work group meetings was on the individual areas 12 of expertise within the agency. Many drafts of this 13 document were edited and reviewed by agency management 14 and ultimately a draft was forwarded to the three 15 commissioners on June the 17th. Our expectation is 16 that the 2005, 2009 agency strategic plan, in 17 combination with the agency's business plan, will serve 18 as our road map for future plans and activities. I 19 also feel that it will provide assurance that all of 20 those activities will be in line and will support 21 divisions and goals of the State of Texas. 22 There have been a few changes made to 23 the document since the commissioners were forwarded 24 their draft, and Karen is here this morning to walk you 25 through those changes, and both Karen and I and any 0079 1 other members of the staff that you may wish to call 2 upon are available to answer questions as well. 3 COMMISSIONER CLOWE: Very good. Karen, 4 do you want to show us what changes you're making? 5 MS. BLIZZARD: Yes. Good morning, 6 Commissioners. For the record, I'm Karen Blizzard, 7 publications and graphics coordinator for the Texas 8 Lottery Commission. 9 As Gary mentioned, a black and white 10 review copy of the strategic plan was provided to you 11 on June 17th for your review. In just a moment, I'll 12 be providing you with copies of the strategic plan in 13 its finalized format, which is the use of color, front 14 and back color, the use of color in the graphics and 15 charts throughout the document, and the addition of 16 page numbers and a list of figures and tables to the 17 table of contents, and then we can go through the 18 remaining changes to the plan. 19 To begin with, I'd like to direct your 20 attention to four changes that have already been made 21 to the copies in front of you and then we'll discuss 22 three remaining changes that we would like to make. 23 Starting on page nine -- and I have flagged each of 24 these pages for you and highlighted the sections that 25 we'll be discussing. On page nine, the highlighted 0080 1 section, I had notated this in the previous review copy 2 that you looked at, that the record Lotto Texas jackpot 3 was still on the way up when you received your review 4 copy, so this wording here finalizes the fact that it 5 did reach $145 million for the drawing on June 19th, 6 2004. 7 Any questions or issues with page nine? 8 COMMISSIONER CLOWE: You didn't say it 9 was won, did you? 10 MS. BLIZZARD: I'm very careful not to 11 say that. 12 COMMISSIONER CLOWE: You better talk 13 with Robert. 14 MS. BLIZZARD: Okay. Let's go over to 15 page 95. These are just a couple of word changes that 16 occurred in the performance measures. In Strategy 17 A.1.9, page 95. I'll give you just a moment. It was 18 changed to read, "mass media advertising contracts." 19 The word "contracts" was added to that. And then 20 moving down to A.1.11, the version you received said, 21 "drawing and broadcast studio contract," and that was 22 changed to read, "drawing and broadcast servicing 23 contract." 24 Okay. Page D27, it's one of the 25 appendices, the version you received said, "for 0081 1 spending on television media," in the highlighted 2 section, and it should have read, "for spending on all 3 media not included in the print, radio, or television 4 categories." 5 Now, the remaining three changes have 6 not yet been made, but I have pasted in the wording 7 where appropriate, and so we'll start on page 78. As 8 you can see, at the end of that paragraph under Texas 9 Lottery revenue opportunities, we would like to delete 10 that final sentence and replace it with the language 11 that is posted in there. 12 Do I need to read that for the record 13 or -- 14 COMMISSIONER CLOWE: It would probably 15 be a good idea. Please do that. 16 MS. BLIZZARD: While some of these 17 opportunities would require legislative authority, the 18 Commission remains neutral as to changes in legislation 19 and presents these opportunities for purposes of 20 information." 21 COMMISSIONER CLOWE: Very good. 22 MS. BLIZZARD: Okay. And then over on 23 page 80, third paragraph down, we would like to delete 24 that first sentence, and at the end of that same 25 paragraph, we would like to add a sentence that reads 0082 1 as follows, "The Commission estimates that the 2 introduction of BLT's would result in a statewide 3 decrease in the number of bingo occasions by 4 34 percent, bingo attendance by 34 percent, gross 5 receipts by 33 percent, bingo prizes awarded by 6 33 percent, and charitable distributions by 7 30 percent." I just saw that I left the "B" out of 8 "by" there. Any questions? 9 COMMISSIONER CLOWE: No. 10 MS. BLIZZARD: Those are all the changes 11 that have been made or that we would like to make, and 12 so I welcome any questions or comments that you have. 13 COMMISSIONER CLOWE: Very good. 14 Commissioners, what questions or comments do you have? 15 MR. ATKINS: Mr. Chairman, could I make 16 recommendation? 17 COMMISSIONER CLOWE: Sure. 18 MR. ATKINS: Also on page 80, the 19 right-hand column at the very top, I'd recommend that 20 that last sentence that the language be similar to the 21 new language that Karen read regarding the lottery 22 revenue opportunities. 23 COMMISSIONER CLOWE: Be more specific, 24 Billy, if you would, where you want your change to 25 occur and what do you want it to be? 0083 1 MR. ATKINS: The sentence that reads, 2 "these opportunities would require legislative 3 authority" be replaced with the language that Karen 4 read. And I would have to ask her to read that again 5 from page 78, regarding that the information is being 6 provided for informational purposes on. 7 MS. BLIZZARD: "While some of these 8 opportunities would require legislative authority, the 9 Commission remains neutral as to changes in legislation 10 and presents these opportunities for purposes of 11 information." 12 COMMISSIONER CLOWE: Okay. I understand 13 the change. The Commission is not acting at this point 14 in time, but I understand what you want. I believe the 15 commissioners do, too. 16 COMMISSIONER OLIVERA: Sure. 17 COMMISSIONER CLOWE: Anything further 18 from any of the staff? Commissioners, what comments or 19 questions, please? Hearing none, is there a motion? 20 COMMISSIONER OLIVERA: So moved. 21 COMMISSIONER CLOWE: All in favor, 22 please aye. 23 COMMISSIONER COX: I didn't hear a 24 second. 25 COMMISSIONER CLOWE: Commissioner 0084 1 Olivera seconded, didn't you? 2 COMMISSIONER OLIVERA: I thought I 3 moved. 4 COMMISSIONER CLOWE: You moved. I 5 second. I second. Commissioner Olivera moved and I 6 seconded. All in favor, please say aye. The vote is 7 three/zero. 8 MS. BLIZZARD: Terrific. Thank you. I 9 have a cover sheet available for your signature and 10 several letters of transmittal, if I could bring those 11 forward. 12 COMMISSIONER CLOWE: And Commissioner 13 Olivera's motion was for approval as amended. 14 MS. BLIZZARD: Right. Correct. 15 COMMISSIONER CLOWE: And the only thing 16 that is not spelled out -- well, I guess you did spell 17 it out for Billy. He wanted the language which you 18 read. 19 MS. BLIZZARD: And did you approve that 20 change as well? 21 COMMISSIONER CLOWE: Yes, we did. 22 COMMISSIONER OLIVERA: My intent was for 23 that -- for Billy's revision to be included as well -- 24 MS. BLIZZARD: Okay. 25 COMMISSIONER OLIVERA: -- since it would 0085 1 be uniform with the proceeding section. 2 MS. KIPLIN: Just to clarify the record, 3 I think the vote was to approve the strategic plan as 4 amended as reflected in today's meeting. 5 COMMISSIONER CLOWE: Yeah. Correct. 6 MS. KIPLIN: Mr. Chairman, and you will 7 be signing -- you will be signing in a representative 8 capacity on behalf of the three-member commission. 9 COMMISSIONER CLOWE: Gary, this is an 10 excellent job and very comprehensive. Would you tell 11 us, in addition to yourself and Karen, who participated 12 in developing this? 13 MR. GRIEF: Nelda Trevino also played an 14 instrumental role in helping us be more or less the 15 senior editing team. The staff throughout the agency 16 participated in many meetings, many reviews, many 17 tedious word choice sessions that we had. In 18 particular, though, Ms. Blizzard, I know she's taking a 19 very well-deserved vacation next week. Is that 20 correct? 21 MS. BLIZZARD: Saturday? 22 MR. GRIEF: She's done work in keeping 23 us on track and keeping people with the schedule and 24 getting back their comments and edits and changes, and 25 it truly has been a great team effort. 0086 1 COMMISSIONER CLOWE: So the players are 2 too numerous to mention? 3 MR. GRIEF: They really are. 4 COMMISSIONER CLOWE: Many, many 5 participated? 6 MR. GRIEF: Yes, Sir. 7 COMMISSIONER CLOWE: Well, you know, 8 this is really a management achievement in particular 9 to get an employee to take a vacation on Saturday. 10 Karen, I need to talk with you about that. 11 MS. BLIZZARD: I guess it's just my 12 level of dedication. 13 COMMISSIONER CLOWE: Touche. 14 All right. I'll be signing the cover 15 letter as the representative of the Commission. Thank 16 you very much. 17 Next we'll go to Item No. 15: 18 Consideration of and possible discussion and/or action, 19 including proposal, on amendments to 16 TAC 401.362 20 relating to retailer's financial responsibility for 21 lottery tickets received, for winning lottery tickets 22 paid, and for lottery-related property. 23 MS. KIPLIN: Commissioners, with your 24 permission, I'd like to take the next item up at the 25 same time. These two rule makings really are linked. 0087 1 COMMISSIONER CLOWE: Certainly. And 2 that is Item No. 16: Consideration of and possible 3 discussion and/or action, including proposal, on new 4 rule relating retailer's financial responsibility for 5 stolen and lost lottery tickets and for lottery-related 6 property. 7 MS. KIPLIN: Thank you. Commissioners, 8 these are two proposed rule makings. One, the first 9 one, are proposed amendments to an existing rule 10 section 401.362. The second rule making is a proposed 11 new rule. The proposed amendments to the existing rule 12 will delete references to stolen or lost tickets and 13 the financial treatment of those tickets, to clarify 14 that a retailer receives an accounting for packs of 15 activated tickets instead of a credit, which is the way 16 the current language reflects. That change is an 17 outcome of the rule review, if you'll recall, that we 18 underwent. It will also clarify that a report of 19 damaged tickets is made to the Commission's Lottery 20 Operations Division instead of the security division 21 and also the outcome of the rule review and provide 22 that the director may waive the administrative fee for 23 damaged, unactivated packs instead of activated packs. 24 The new rule is removing language 25 relating to the lost and stolen tickets and putting it 0088 1 into a new rule. The Lottery Operations Division is 2 the primary division responsible for the administration 3 of these rules and they have reasons and rationale 4 about why they are coming forward and asking for you 5 all to propose these rule makings for public comment. 6 The purpose is to clarify each retailers fiduciary 7 obligations with respect to the respective lottery 8 tickets received, subsequently, the damaged, stolen, or 9 lost and for prizes paid and the general financial 10 obligations for lottery retailer-related properties. 11 We have had a level of interest before 12 we came to the Commission today to request y'all's 13 consideration of proposing these rule makings for 14 public comment, and with that in mind, the staff would 15 like to ask that the Commission consider noticing up a 16 public hearing for comment, and we're looking at 17 July 27th as that day. We think that that would be a 18 good opportunity for those who want to provide comment 19 in a form other than written who do have an interest in 20 this rule would be able to come forward. 21 That concludes my remarks. I'll be 22 happy to answer any questions. At this point, I think 23 I'll turn over to Mr. Anger. As I understand, Mr. 24 Anger did make a presentation at the last Commission 25 meeting, a fairly detailed presentation. I was not 0089 1 present for that, so I would refer you back to that 2 presentation. 3 Mr. Anger, I don't know if you have any 4 comments. 5 MR. ANGER: Commissioners, just briefly, 6 as a follow up to what Kim was saying, Rule 401.362, 7 the financial responsibility rule for licensees that 8 covers all of these topics, we did discuss at the last 9 Commission meeting. It was one of the noticed items, 10 at that time I indicated to you that the staff had 11 looked at that rule and had intended to propose changes 12 to the stolen and lost ticket rule that you have before 13 you and that we intended to carve that particular 14 aspect of the rule out into a separate rule because we 15 felt that it would be clearer for the licensees to 16 understand the different concepts that were currently 17 combined under the existing rule, and so that's what 18 we've done here, and these two rules represent that 19 effort. 20 I would be glad to answer any questions 21 that you have. 22 COMMISSIONER CLOWE: Questions? 23 COMMISSIONER COX: I just have a 24 comment, Mr. Chairman. 25 I spent what they probably thought was 0090 1 half a day yesterday talking to Gary and Michael and Ed 2 Rogers about these rules, and it's a lot more 3 complicated area than it looks on its face, and they 4 have really thoroughly looked at the ins and outs of 5 this. I was impressed with the process that they had 6 gone through. 7 COMMISSIONER CLOWE: In light of that, I 8 agree with you. Could you comment, or Michael or 9 whoever would like to, on some of these comparisons 10 that were made? 11 MR. ANGER: Chairman, are you referring 12 to the information I sent in the weekly packet? I can. 13 At the last Commission meeting, Chairman, you had 14 requested from me some information about what other 15 states did in this area. I think, in particular, your 16 comment was related to what other large states did, but 17 what we did in response to your request was, we put 18 together some questions to other lotteries in North 19 America about how they handle stolen, lost, and damaged 20 ticket and we put together this summary survey, and we 21 did receive a number of responses to that survey, and I 22 think there's -- I sent you a memo on this, but I'd 23 like to read some of this into the record. I think it 24 kind of summarizes what we found. 25 With regard to stolen and lost tickets, 0091 1 the practices that other lotteries use range from 2 granting retailers relief from these types of losses to 3 providing little or no relief to retailers. Five of 4 the states -- and to quantify this, earlier on I state 5 that the samples total 20 different lotteries that 6 responded to this survey, so with that in mind, five of 7 the states do not charge retailers anything for tickets 8 that are reported stolen; two states charge retailers 9 the face value of the stolen tickets, less retailer 10 commissions, and offer no opportunity for retailers to 11 receive credit; nine states assess retailer's charges 12 equal to the face value of stolen tickets initially, 13 but then offer provisions through which retailers can 14 receive credit or reduce the cost of their losses after 15 the initial charge; four states charge retailers a 16 reduced amount for tickets that are lost or stolen. 17 The lottery responses are attached in this survey. 18 The short answer is, is that there's a 19 diversity of ways that these types of issues are 20 covered in different lotteries, and I think -- and I 21 appreciate your comments, Commissioner Cox. This is a 22 very challenging issue. It's very complex. There's a 23 lot of different facets of it and there are a multitude 24 of different issues that we face, and I think you see 25 that in the diversity of approaches that are out there. 0092 1 There are approaches in this survey that reflect our 2 current rule and there are also approaches that reflect 3 what we're proposing. 4 And as a follow up to our conversation 5 at the last meeting, this was an issue that was raised 6 to us as a fairness issue on the part of the licensees 7 and it has to do -- and it's hard with the fact that 8 stolen tickets, when reported by licensees, are 9 statused and charged to their account and we freeze the 10 prizes in those games and we don't make payment on 11 those prizes, and that's been raised as an issue of 12 fairness that we're, you know, collecting what we 13 intend to be collecting when put that inventory out in 14 the field for sale; yet, we're not managing the 15 responsibilities for those prizes, and the rule change 16 that we're proposing takes us away from that and it 17 keeps the financial responsibility on the part of the 18 retailer for those tickets that they sell, that it 19 captures those tickets that did not sell that were 20 actually resulting in a stolen and loss and no 21 validations have occurred and we're crediting the 22 retailers for those particular tickets. 23 COMMISSIONER CLOWE: What about tickets 24 that are damaged due to water or fire or other 25 occurrence like that? 0093 1 MR. ANGER: The current damaged ticket 2 rule -- and we've made some changes in 401.362 which I 3 would call clean-up changes, but essentially, the 4 damaged ticket rule remains the same, and what that 5 rule is, Commissioner, is that tickets that are in a 6 noncashable status that are damaged have a $25 per pack 7 administrative fee associated with them and then 8 there's a provision in that rule that remains that the 9 Act of God Provision, and it deals with situations 10 where there's some sort of natural disaster that occurs 11 that may affect the retailer's inventory, and taking 12 that into account, we can waive that pack fee on 13 confirmed packs. 14 COMMISSIONER CLOWE: So you're seeing 15 that as equitable as it stands? 16 MR. ANGER: Yes, sir. And to give you a 17 little bit of back ground, the existing rule, even 18 though it deals with financial responsibility for a 19 multitude of different issues, both internally to the 20 agency and externally among or licensee base, has 21 fondly or unfondly become known as the stolen ticket 22 Rule, and that's the way we refer to the rule because 23 that's the heart of the issue that licensees have come 24 forward to us and expressed concern about, and so we've 25 tried to carve that out and address that issue for our 0094 1 licensees and we haven't received the same type of 2 comment with regard to our damaged ticket process. 3 COMMISSIONER CLOWE: And you've taken 4 what all the other states do into account and proposed 5 the rule that you're asking us to publish? 6 MR. ANGER: We have, sir. 7 COMMISSIONER CLOWE: Reagan, do you have 8 a comment on that? 9 MR. GREER: No, sir. I've been involved 10 in the process and am very pleased from the perspective 11 that I continue to hear this going on at these retailer 12 link meetings. This is a very substantial issue to 13 them, and I'm just excited about the work that's been 14 done not only with Mike, but Commander Pitcock as well 15 as Ed Rogers to address this variance. 16 COMMISSIONER CLOWE: Do you want him to 17 address it now? 18 MR. GREER: In reference to the? 19 COMMISSIONER CLOWE: The proposed rules. 20 Do you think him to make a comment on this? 21 MR. GREER: No, sir, I have no other 22 issues. 23 COMMISSIONER CLOWE: You said you didn't 24 have a comment and then I thought you made one, so -- 25 MR. GREER: Well, I just gave my 0095 1 opinion, basically, where we are. 2 COMMISSIONER CLOWE: What I had heard, 3 and I wanted you to say it, was that you're hearing 4 from the retailers that they're asking for equity in 5 this situation and that you're getting this feedback 6 from your retailer forms because they felt they weren't 7 being treated fairly. I guess that's what I was 8 fishing for. 9 MR. GREER: Yes, sir. And I touched on 10 that based on my meeting at the links, but your 11 statement is totally correct. They're going to be 12 pleased. I'm pleased because it put me in an awkward 13 environment when I'm making some of these visits not to 14 be able to address it in a more positive light from a 15 fairness perspective. 16 COMMISSIONER CLOWE: Well, I think it's 17 important that the Commission look at this sort of 18 thing, and these retailers are extremely important to 19 the lottery operation in the state and we should give 20 them equity wherever it's within the rules of the 21 Commission to allow it as fairness. 22 MR. GREER: Well, and we're looking at a 23 scenario now, 16,422 retailers the last time I looked, 24 I think was the last week's scenario. We're wanting to 25 take that up another level. These type of actions on 0096 1 your part in allowing them to be in the process of 2 helping us to have a clearer understanding will help us 3 bring more retailers in the process. 4 COMMISSIONER CLOWE: Commissioner Cox, 5 you've obviously spent a lot of time on this staff. 6 Would you give us a comment about your feeling at this 7 time? 8 Is that proper, counselor? 9 MS. KIM: Yes, I think it is. You're 10 trying to deliberate about whether you want to propose 11 these draft rule makings for public comment. 12 COMMISSIONER CLOWE: All right . 13 COMMISSIONER COX: Well, Mr. Chairman, 14 the issue that I had difficulty understanding is why a 15 retailer that had a ticket stolen would receive more 16 favorable treatment than a retailer who had tickets 17 damaged other than by an act of God, and, as I said, 18 the issue is a lot more complex than it seems on its 19 face. It seemed obvious to me that you would give 20 better treatment with damaged tickets than stolen 21 tickets, and yet, that just doesn't work. And the 22 database that they keep on stolen ticket reports is 23 such that they're able to be sure that somebody doesn't 24 say, "Well, gosh, let's see, if these are damaged, I 25 don't get anything, but if they're stolen, I get it; 0097 1 I've got an idea," but they have a way of tracking that 2 and making sure that, if that happens, it's only on an 3 isolated basis and not as a pattern. 4 COMMISSIONER CLOWE: So we're protected? 5 COMMISSIONER COX: It's look to me like 6 this is an excellent solution to a very difficult 7 problem. 8 COMMISSIONER CLOWE: Mr. Olivera? 9 COMMISSIONER OLIVERA: I have no further 10 comments. 11 COMMISSIONER CLOWE: Anything to add, 12 Michael? 13 MR. ANGER: No, sir. 14 COMMISSIONER CLOWE: Do you want a 15 public hearing July the 27th? 16 MS. KIPLIN: Yes, sir. 17 COMMISSIONER CLOWE: Do you want that 18 part of the motion? 19 MS. KIPLIN: I've incorporated it into 20 the preamble, so I don't know that I need it as part of 21 the motion because it will be part of the preamble. 22 I've revised this, I should say, and I apologize for 23 not saying it at the beginning of this presentation. 24 The draft document you have in your notebook does not 25 reflect that. We've added language that will be part 0098 1 of the proposed rule that will be published and we're 2 back -- we're publishing it -- and I know it seems as 3 though it's a long time in the future for a rule making 4 comment hearing, but because of the publication dates 5 of the Texas Register, I tracked it from the day that 6 it will actually be published, and it gives about nine 7 days notice. We'll also go ahead and put it on our web 8 site and we will also file a separate document for 9 notice of that hearing. 10 So, to answer you question, no, I don't 11 need a separate motion. The staff would request at 12 this time that the commission vote to publish these two 13 rule makings for public comment and it will be a 3-day 14 public comment hearing. 15 COMMISSIONER CLOWE: Is there a motion? 16 COMMISSIONER COX: So moved. 17 COMMISSIONER OLIVERA: Second. 18 COMMISSIONER CLOWE: All in favor, 19 please say aye. Opposed no. The vote is three/zero in 20 favor. Thank you. 21 Next we'll go to Item 17: Report, 22 possible discussion and/or action on the instant 23 tickets and services procurement. 24 Mr. Bennett. 25 MR. BENNETT: Good morning, 0099 1 Commissioners. For the record, my name is Ridgely 2 Bennett, and I'm deputy general counsel of the Texas 3 Lottery Commission. Commissioners, the Commission's 4 current emergency contacts for instant tickets and 5 services will expire on August 31st, 2004. A draft 6 request for proposal for instant tickets and services 7 has been prepared by agency staff and is currently 8 undergoing a review process. We expect to issue the 9 RFP in the near future. The staff brings this RFP to 10 the Commission's attention in light of the Sunset 11 Commission's report recommending greater oversight of 12 major contacts by the Commission. 13 I'll be happy to answer any questions 14 that you may have. This is not necessarily an action. 15 COMMISSIONER CLOWE: Are there any 16 questions? Thank you, Mr. Bennett. 17 The next item is yours as well, Number 18 18: Report, possible discussion and/or action on the 19 agency's audit services procurement. 20 MR. BENNETT: Thank you, Commissioners. 21 On June 8th, 2004, the Texas Lottery Commission issued 22 a request for proposals for audit services. The RFP 23 incorporates the financial audit, security audit, and 24 Mega Millions agreed upon procedures. 25 I'll be happy to answer any questions 0100 1 regarding that audit. 2 COMMISSIONER CLOWE: Are there any 3 questions? 4 Thank you, Mr. Bennett. Are you ready 5 to take up this next item? 6 MR. BEEN: Commissioners, I believe 7 staff would like to pass the next item. 8 COMMISSIONER CLOWE: Thank you. 9 Commissioners, with your permission, I 10 would like to go to Item No. 22 and cover, following 11 that, the reports from the executive director, the 12 Charitable Bingo operations director, and public 13 comment prior to going into executive session. 14 At this time we'll then take up Item 22: 15 Consideration of the status and possible entry of 16 orders in dockets covered in letters A through P. 17 Ms. Kiplin. 18 MS. KIPLIN: Commissioners, what you 19 have in your notebook are proposed orders from 20 contested case proceedings that occurred at the State 21 Office of Administrative Hearings as well as agreed 22 orders, proposed agreed orders, that represent a 23 settlement between the staff and the respondent. I 24 would like to direct your attention to Item O, Case 25 Number 2004-415 in the matter of American Legion Post 0101 1 507. The staff would request to pass that item at this 2 point. We understand that there had been a Federal 3 Express package from the respondent on an agreement on 4 that matter. We do not have that currently in the 5 legal division, and so we'd like to pass that item. 6 With the remaining items, the contested 7 case proceedings related to the lottery matters, those 8 are A through L, are recommendations to revoke licenses 9 either as an outcome of an insufficient funds or a 10 crime of moral turpitude -- that would be theft at the 11 Lucky Seven Quick Stop No. 3; that makes them 12 ineligible to hold a retailer's license -- or a failure 13 to notify the Commission of a change in application 14 information, specifically that the retailer has gone 15 out of business and they are not the ones that are 16 selling our lottery tickets. 17 I don't know if you'd like for me to 18 stop now and proceed on just the lottery cases or 19 continue? 20 COMMISSIONER CLOWE: Let's do that. 21 Let's handle just the lottery cases. 22 Commissioners, are there any questions 23 or comments, as I understand it, counselor, on cases 24 identified by letter A through L? 25 MS. KIPLIN: Yes, sir, that is correct. 0102 1 COMMISSIONER CLOWE: Do you want a 2 motion approved by the Commission to adopt the staff 3 recommendation? 4 MS. KIPLIN: I'd like a motion that you 5 would adopt the proposal for a decision and the 6 proposed orders in each of these cases. 7 COMMISSIONER CLOWE: Is there a motion? 8 COMMISSIONER OLIVERA: So move. 9 COMMISSIONER COX: Second. 10 COMMISSIONER CLOWE: All in favor, 11 please say aye. Opposed, no. The vote is three/zero 12 in favor. 13 MS. KIPLIN: Commissioners, I'd like to 14 direct your attention now to Item M, Docket No. 15 362-04-1228.B in the matter of Town West Bingo, 16 Incorporated. Commissioners, the matter before you in 17 this was the issue of whether the respondent's -- well, 18 I would just say, Town West Bingo, Incorporated's 19 application to renewal its annual license to lease 20 bingo was timely filed. We had requested an AG opinion 21 sometime back on whether there was any sort of grace 22 period allowed by law in the event that folks who were 23 filing renewal applications missed that deadline. The 24 response, as I recall, was no. 25 We have, from time to time, applications 0103 1 that appear to be filed untimely, and in this 2 particular matter, we did take this to hearing, and the 3 staff took the position of denying this application for 4 a failure to timely file its renewal application. The 5 licensee did appear and put on evidence that I recall, 6 just in reading it -- I haven't read it in some time; I 7 read it when it came in -- that, in fact, he did submit 8 and tender to the U.S. Postal System the application. 9 He had an affidavit from, I believe, the postmaster 10 that corroborated that testimony. The administrative 11 law judge in that matter did issue a proposal for a 12 decision and it has a recommended proposal order that 13 would indicate that the renewal application was, in 14 fact, timely submitted because of submission to the 15 post office and that issuing the renewal license is 16 warranted. Staff, doesn't oppose that. We've simply 17 been looking for findings of facts and conclusions of 18 law. 19 This is an unusual case, that's why I've 20 spent the time going through it with you because your 21 vote to adopt the proposed findings and conclusions of 22 law in the proposed order would, in fact, allow for the 23 issuance of this renewal license. I believe Mr. Oldham 24 handled this case, so I may be incorrect on that, and 25 Mr. Atkins is also here. We really didn't feel -- 0104 1 there was some discussion about whether we should just 2 pull this case down but felt, at least I did, that it 3 was better to present it to the Commission as a 4 statement of policy when you sign this and it can be 5 used in future cases where we have similar facts, so at 6 this time, staff is recommending that you vote to 7 approve the proposed findings and conclusions in this 8 matter and enter the order that would allow for the 9 issuance of this renewal license. 10 COMMISSIONER CLOWE: Any comments, 11 Billy? 12 MR. ATKINS: No, sir. 13 COMMISSIONER CLOWE: Okay. As I 14 understand it now, the way you've explained it, you're 15 asking the Commission to approve this, and if the 16 Commission does that, it will issue establish 17 precedence in similar cases where the facts are 18 concerned? 19 MS. KIPLIN: Yes, I think so. At least 20 that's what our aim is. 21 COMMISSIONER CLOWE: And you're 22 comfortable with that? 23 MS. KIPLIN: Yes, I am. 24 COMMISSIONER CLOWE: And you're 25 comfortable with it, Billy? 0105 1 MR. ATKINS: Yes, sir. 2 COMMISSIONER CLOWE: Commissioners, with 3 that understanding, any questions or comments? Mr. 4 Olivera, you got any thought on that? 5 COMMISSIONER OLIVERA: I've reviewed the 6 proposed findings of facts and the conclusions of law, 7 and I have no problem with that, and I so move that we 8 adopt these findings and conclusions of law. 9 COMMISSIONER COX: Second. 10 COMMISSIONER CLOWE: All in favor, 11 please say aye. Opposed, no. The vote is Three/zero. 12 MS. KIPLIN: Commissioners, the 13 remaining two cases, which are item N and Item P, are 14 outcomes of a settlement between the -- a proposed 15 settlement between the staff and the respondents in 16 each of these cases. In each of these cases, as I read 17 it, the licensee played outside of license times, and 18 the staff is proposing that the Commission enter an 19 agreed order in which they submit procedures, which 20 they've done, as part of signing the agreement to 21 ensure that they're not going to play outside of their 22 license times. 23 In one case it had to do, I think, with 24 them filing the amendment and just not hearing back 25 from the Commission and then there was a 0106 1 miscommunication about whether they were authorized to 2 proceed, and, in fact, they did proceed. Staff is 3 recommending that you do vote in each of these cases to 4 adopt a settle agreement and enter an agreed order. 5 COMMISSIONER CLOWE: Are there 6 questions? 7 MR. ATKINS: I was just going to say, I 8 don't know if I would agree with Ms. Kiplin's 9 representation that there was any type of 10 miscommunication regarding their ability to play. I 11 think the organizations went ahead and played out 12 without receiving notification from the Commission that 13 they were authorized to do so, but, as she says, they 14 have produced procedures indicating steps they'll take 15 to prevent that from occurring in the future. 16 COMMISSIONER CLOWE: So you're 17 satisfied? 18 MR. ATKINS: Yes, sir. 19 COMMISSIONER CLOWE: This motion covers 20 cases identified by the letter N and P? 21 MS. KIPLIN: That is correct. 22 COMMISSIONER CLOWE: It there a motion? 23 COMMISSIONER OLIVERA: So moved. 24 COMMISSIONER COX: Second. 25 COMMISSIONER CLOWE: All in favor, 0107 1 please say aye. Opposed, no. The vote is three/zero 2 in favor. We'll sign these two orders and then, 3 Reagan, I'll be calling on you for your report by the 4 executive director: Possible discussion and/or action 5 on the agency's operational status, FTE status, and 6 retailer forums. 7 We have a smell of smoke in the 8 building, so if the fire alarms do go off, we'll have 9 to evacuate, so we're in the process of checking that. 10 Let's see. I would recommend maybe we take a break 11 until we get this cleared up. Let's recess until 12 Commander Pitcock let's us come back in. 13 (A short break was taken.) 14 COMMISSIONER CLOWE: Let's go to Item 15 No. 23: Report by the executive director. Reagan. 16 MR. GREER: Yes, sir, Mr. Chairman. 17 Thank you. 18 I wanted to touch -- 19 COMMISSIONER CLOWE: Oh, pardon me. Let 20 me just interrupt. For the record, Commissioner 21 Olivera is absent. He was required to leave the 22 meeting, so we're continued with Commissioner Cox and 23 myself, and the time is 11:00 a.m. Thank you. 24 MR. GREER: I just wanted to touch on a 25 few things that have been taking place over the last 0108 1 month. I want to reiterate the excitement level that 2 went with the $145 million jackpot and reinforce to you 3 that the old record was $85 million; it was set on 4 March the 7th of 2001. We touched on a great sales 5 week, I believe, with $122 million. The prior record 6 was in 1997 at $103 million, but also worth noting is 7 that the roll cycle on the last draw with the 8 $145 million Lotto Texas started at $4 million on 9 February the 27th and went until June 19th, sales have 10 totalled more than $200 million during that time frame, 11 and that $70 million went to the foundation school fund 12 during that roll. That was extremely significant. 13 Equally significant to me is the fact that you're 14 looking at a scenario today of ten percent over last 15 year, our overall sales, and the fact that we 16 acknowledge $6.3 billion into the foundation school 17 fund all positive. 18 The current focus being the $280 Mega 19 Millions jackpot is receiving a lot of attention today. 20 We've had a couple of reporters here just this morning. 21 Also, in last night's drawing, I think it's worth 22 noting that we bumped the drawing from 210 to 220 based 23 on strong sales across the country in the process, and 24 we did have five 175 winners as was stated, but also 25 217,708 winning tickets that went out as a part of that 0109 1 drew. I just received an e-mail a moment ago, the Mega 2 Millions directors just got off a phone call and they 3 will be moving the drawing from Friday night back to 4 New York City Times Square. You'll begin to see the 5 lottery national attention on that at the 230 mark. It 6 would be in the ABC affiliate Good Morning America. 7 The New York Lottery will be coordinating the drawing 8 working with our security and financial divisions, so 9 that's sort of an announcement, a news flash, that just 10 came just a second ago. 11 COMMISSIONER COX: Reagan? 12 COMMISSIONER CLOWE: Reagan? 13 MR. GREER: Yes, sir. 14 COMMISSIONER COX: Go ahead. 15 COMMISSIONER CLOWE: You and I were 16 going to say the same thing. 17 COMMISSIONER COX: Just say it. 18 COMMISSIONER CLOWE: Go ahead. 19 COMMISSIONER COX: When is that going to 20 be on Sixth Street? 21 MR. GREER: Well, sir, there would be a 22 financial aspect to that that we'll be happy's to visit 23 with you about. One of these days, that will probably 24 happen. I was thinking about the state fair. 25 The New York Lottery absorbed the costs 0110 1 last time they did it. They don't go into detail in 2 this e-mail that I just received from Buddy. We had 3 talked about it as a group of directs in the past. 4 I'll get back to you to give you a full overview on 5 that because it just happened. The key element there 6 was the national exposure that New York Times Square 7 brings with it as well as the morning talk shows and 8 all the things, you know, that transpire in New York 9 City being the country's largest city, so it's going to 10 take it up another notch, and I'll review the cost 11 aspects of that on 6th Street with you as well as what 12 happens on this drawing down the road. 13 But the goal is, ultimately, and one of 14 the things that we did bring up in Baltimore in that 15 meeting was to put in place a procedure so we could 16 move the drawing around the country. I think the Mega 17 Millions directors are equally excited about Texas 18 coming on board because of the quickness of the rolls. 19 I mean, it wasn't that long ago that I was talking 230 20 with you and now today I'm talking 280, and that's just 21 been in a period of months, and so we're going to 22 continue to see, I think, these high jackpots that will 23 warrant moving the drawings around, but I want to be 24 sure -- I'm very comfortable with the way that the last 25 drawing went, the $230 level, because it was really a 0111 1 New York Lottery in the way that they do it, but I want 2 to be sure that those procedures are in place if we 3 decide to go elsewhere. We're working on that issue. 4 COMMISSIONER CLOWE: Reagan, it would be 5 better for a Texan to win at a New York drawing than a 6 6th Street drawing. Keep that in mind. 7 MR. GREER: Liz mentioned in her report 8 a few minutes ago that her fingers were crossed on a 9 Texas winner. It's time for a Texas winner. I would 10 love for it to be somebody at this $280 level. 11 COMMISSIONER CLOWE: Okay. Now 12 Commissioner Olivera just returned. I thought you were 13 going to have to catch a plane. 14 COMMISSIONER OLIVERA: Sheila is waiting 15 to take me at 11:15, so she gave me another 15 minutes. 16 COMMISSIONER CLOWE: Okay. All right. 17 We'll he's back then so we have a full Commission. 18 MR. GREER: Texas Two Step has moved to 19 new drawing days, as we talked about in April, and that 20 took place with the first drawing on June 28th, Monday. 21 Our second drawing will be this Thursday, July the 1st. 22 The drawing went well. There will be an adjustment for 23 players getting used to that. Moving that, I think, 24 though, was a good overall perspective taking away the 25 competition with Mega Millions on that same Tuesday, 0112 1 Friday draw and giving it its own night. The features 2 will all be the same, still multi-draw. The time will 3 be at 10:12 central time. All that is going to 4 continue to see Texas Two Step, I think, move into a 5 more positive light. The hit that it had taken in 6 reference to Mega Millions was in the 30's, 31 percent, 7 32 percent, and so we needed to do that, so thank you 8 for allowing us to go forward on that issue. 9 We touched on a few minutes ago what's 10 going on in the instant ticket world, but there are two 11 tickets specifically that I want to draw your attention 12 to, one is the Corvette cash game we kicked off 13 June 16th. Sales are good on that. We have done Bucks 14 and Trucks in the past. I think that there is a new 15 player out there who may want a Corvette convertible. 16 We're seeing those numbers in a positive light right 17 now, and I'll keep you apprised of how that goes. 18 Another thing we've been talking about 19 for quite a while in reference to instant tickets is a 20 $25 game, and, in fact, today that game will be on the 21 street. It's called Run the Table. It's got a top 22 prize of $1 million, with overall odds of 1 and 2.78. 23 The retailers, for years actually, have talked about a 24 higher jackpot amount and a better instant ticket 25 overall perspective in the higher realm because those 0113 1 $20 tickets sold quickly. We're going to monitor this 2 very closely and we'll bring you back a report as to 3 how this game does. 4 I did want to also make you aware of the 5 fact that we have a new IT project that I'm really 6 excited about. It's an intranet development of better 7 communication within the agency as a whole. We're 8 looking at kicking that off in the HR area. They're 9 going to be data testing on a new intranet. We are all 10 working together on that project. That's an exciting 11 thing within the agency. Billy had a great conference, 12 the Nagra Conference. I spoke as part of that 13 conference on June the 6th, and I wanted to commend him 14 for his work in putting that together as one of the key 15 players in the Nagra Organization. I also wanted to 16 reinforce my thanks to Joyce and her group on the HUB 17 format; that was a great thing, and especially brought 18 the whole team together to continue our positive 19 feedback in that area. Yesterday, human resources had 20 a blood drive that I thought worth mentioning because 21 we did have 29 donors. We are community focused here 22 at the Lottery Commission. 23 Our theme of the month was summer 24 motivation versus the summer blahs. We've had no time 25 for blahs because of all the high jackpots and the 0114 1 number of other things that have gone on, but, once 2 again, I wanted to let you know that I'll keep you in 3 the loop in this Mega Millions realm and see where this 4 jackpot level takes us. We're looking at a great year 5 here at the Texas Lottery. Our fiscal year is coming 6 to a close at the end of August, and I think we'll show 7 a lot of positive things that have happened in the last 8 year, and I'm pleased to be a part of it, and thank you 9 for the opportunity. 10 COMMISSIONER CLOWE: Question: What was 11 the revenue goal for this fiscal year, Reagan? 12 MR. GREER: $3.35 billion. My goal was 13 more toward 3.5. I wanted to set a little higher bar, 14 but right now, we're tracking at around the 3.4 level. 15 That will be dependent on how the years ends out as far 16 as these jackpots and other things, but I feel really 17 good about being over the 3.13 that we did in '03, and 18 we'll just have to see how that plays out. 19 COMMISSIONER CLOWE: And what's the goal 20 for the next fiscal year? 21 MR. GREER: I haven't totally committed 22 to that yet, but certainly, in my mind, I'm looking at 23 trying to reach our all-time-high level again in 1997 24 realm, which was 3.7 plus. Certainly, we're all 25 focused on that, and I'll be bringing you my goals as 0115 1 we get into the new year. 2 COMMISSIONER CLOWE: Great. Thank you. 3 Next Item is Item No. 24: Report by the 4 Charitable Bingo Operations Director and possible 5 discussion and/or action on the Charitable Bingo 6 Operations Division's activities. 7 Mr. Atkins. 8 MR. ATKINS: Thank you, Mr. Chairman. 9 I'd just like to update you on some things that are 10 contained in my report. Under staffing, we do have an 11 audit position in our Dallas office that will become 12 vacant affective July 1st, tomorrow, and we will be 13 working on posting that. You have in your notebook an 14 allocation memo for the first quarter of 2004. Again, 15 when you look at it, you'll notice that allocations are 16 up almost four percent from the previous quarter, eight 17 and a half percent from the first quarter of 2003. 18 Again, these allocations are derived from the prize 19 fees collected and, of course, we see a substantial 20 increase in prizes awarded due to the new types of pull 21 tabs that are being offered. 22 Also, I wanted to draw your attention to 23 the bingo activity report, particularly under the 24 licensing section, where you'll see that licensing has 25 issued approximately 6500 applications so far this 0116 1 year. That's about an 1100 application increase over 2 the previous year, again, due primarily to changes from 3 2519 in terms of the number of temporary licenses that 4 an organization can get. Again, this has been a 5 significant increase for the licensing section, 6 particularly when it's combined with the registry of 7 workers. The staff has been doing very well so far I 8 believe in keeping up with the increased workload, but 9 it has represented a pretty significant increase in the 10 workload that they've had to address. 11 Just to touch again on Nagra, I will be 12 assuming the office of president affective tomorrow. I 13 do think it was a great conference. We've gotten a lot 14 of good feedback. We've updated our web page for 15 Nagra, and one of the services that we've done for the 16 membership is, we've been able to post copies of the 17 presentations that were given for the members to go and 18 access, should they want to, from their home 19 jurisdictions. 20 Another thing that I intend to be 21 working on during the interim period prior to the 22 Halifax conference is the development of a policy and 23 procedure manual for Nagra so that a lot of the 24 institutional knowledge that former officers, committee 25 chairs, et cetera, have can be documented and can be 0117 1 used by future officers or committee members as a way 2 to build and further develop the organization and make 3 transitions for people, either as officers, committee 4 chairs, or board members, a little more smooth. For 5 example, one thing that we're encountered is, we 6 transferred -- we changed management companies and 7 there was a substantial amount of time that was 8 required for the new management company to come up to 9 speed, and my hope is that this policy and procedure 10 manual will make changes like that not so difficult and 11 easier for the organization to endure. 12 The only other thing that I wanted to 13 let you know about that isn't on the report, the bingo 14 division did offer training to other members of the 15 agency on our new automated charitable bingo system. 16 That was conducted on June 23rd and we had about 21 17 folks, primarily from the security division and the 18 internal audit, sit in on that training, and it was 19 geared primarily to giving them an overview of how they 20 can go in and search for information on the ACBS. 21 We've gotten a good response from that training. We're 22 going to be offering some follow-up training for some 23 divisions that weren't able to make it on that day so 24 that folks that have a need to get into the ACBS can 25 look up information and will know how to do that. 0118 1 COMMISSIONER CLOWE: Comments? 2 COMMISSIONER COX: Congratulations, 3 Billy. 4 MR. ATKINS: Thank you. 5 COMMISSIONER CLOWE: We do congratulate 6 you on your ascendency. And are we going to address 7 you now as Mr. President, or how should we -- 8 MR. ATKINS: I do think it would be nice 9 if we could play Hail to the Chief whenever I come up. 10 COMMISSIONER CLOWE: Very good. 11 I made a small comment at the opening of 12 your meeting in San Antonio, which I was very pleased 13 to do and appreciated the opportunity to meet the 14 people in that organization. It's a good organization. 15 I think it's important for us to participate in those 16 kinds of groups to interface and to gain from the 17 experience of learning their ways of doing business, 18 and there's a strong Canadian interest in that group, 19 I've noticed, in the western states. I think it would 20 benefit our bingo division for you to serve in that 21 capacity, and we'll probably get more out of it than we 22 put into it through that affiliation, so I'm very 23 pleased that you accepted that position and the 24 commissioners, I think, are happy for you. 25 Is there anyone, under Item 25, wishing 0119 1 to make comment to the Commission at this time? 2 Commissioners, with your permission, 3 I'll move that we go into executive session at this 4 time. 5 At this time I move the Texas Lottery 6 Commission go into executive session to deliberate the 7 duties and evaluation of the executive director and/or 8 deputy executive director, internal audit director, and 9 charitable bingo operations director pursuant to 10 Section 551.074 of the Texas Government Code; to 11 deliberate the duties of the general counsel and the 12 security director pursuant to Section 551.074 of the 13 Texas Government Code; to receive legal advise 14 regarding pending or contemplated litigation and/or to 15 receive legal advice pursuant to Section 551.071(1)(A) 16 or (B) of the Texas Government Code and/or to receive 17 legal advice pursuant to Section 551.071(2) of the 18 Texas Government Code, including but not limited to: 19 Patsy Henry versus Texas lottery Commission; Sandy 20 Surber, et al versus GTECH Corporation; Yolanda Garza 21 versus SSP, et al; Linda Cloud versus Mike McKenney, at 22 al; James T. Jongebloed versus Texas Lottery 23 Commission; Steven W. Hieronymus, et al versus Texas 24 Lottery Commission and Gametech International, Inc, 25 employment law, personnel law, procurement and contract 0120 1 law, evidentiary and procedural law, and general 2 government law. 3 Is there a second? 4 COMMISSIONER OLIVERA: Second. 5 COMMISSIONER CLOWE: All in favor, 6 please say aye. The vote is three/zero in favor. The 7 Texas Lottery Commission will go into executive 8 session. The time 11:15 a.m. today is June the 30th, 9 2004. 10 COMMISSIONER OLIVERA: Mr. Chairman, for 11 the record, I will not be participating. I'm going to 12 be leaving to the airport. 13 COMMISSIONER CLOWE: Thank you for your 14 service. 15 (Executive Session) 16 COMMISSIONER CLOWE: The Texas Lottery 17 Commission is out of executive session. The time is 18 2:21 p.m. Today is June the 30th, 2004. Is there any 19 action to be taken as a result of the executive 20 session? If not, let's move back to Agenda Item No. 21 14: Report, possible discussion and/or action, 22 including adoption, of the agency's strategic plan. 23 Ms. Blizzard, did you have an item that 24 you wanted to bring to our attention. 25 MR. GRIEF: Mr. Chairman, if I could, I 0121 1 inadvertently failed to ask Ms. Blizzard to point out a 2 handful of other word changes that were made to the 3 document, so if you will allow us, I would like to give 4 her a chance to point those out to the commissioners 5 before we end the day. 6 COMMISSIONER CLOWE: Very good. 7 MS. KIPLIN: In light of that, because 8 y'all voted and approved the plan as reflected on the 9 record, I think you're going to need to go ahead and 10 consider that and do the separate -- another action. 11 COMMISSIONER CLOWE: Ratification and/or 12 action? 13 MS. KIPLIN: Yeah, I think so, if y'all 14 accept the changes. 15 COMMISSIONER CLOWE: All right. Ms. 16 Blizzard. 17 MR. GREER: Mr. Chairman, I have two 18 points in reference to this report that I just wanted 19 to bring up as points of information. 20 COMMISSIONER CLOWE: Now or after we 21 deal with these? 22 MR. GREER: I'd say let's go ahead and 23 make the changes. 24 MS. BLIZZARD: Thank you, Commissioners 25 For the record, I'm Karen Blizzard, publications and 0122 1 graphics coordinator for the Texas Lottery Commission. 2 I will talk about these changes now which are notated 3 in your copies with red sticky notes. 4 COMMISSIONER CLOWE: He's taking them 5 off again, Karen. 6 MS. BLIZZARD: The first change is on 7 page two. One of the relevant benchmarks under 8 regulatory was removed. It did say percent of state 9 professional licensee population without documented 10 violations, and it was removed because the feeling was 11 that that one was not entirely relevant. 12 COMMISSIONER CLOWE: All right. 13 MS. BLIZZARD: On page eight -- I'll 14 give you a moment to flip over -- second paragraph, it 15 did read top prizes for current instant games, et 16 cetera, and top has been deleted, so the sentence now 17 begins prizes for current instant games ranging from $1 18 to $2 million. 19 COMMISSIONER CLOWE: All right. 20 MS. BLIZZARD: Also on page eight, under 21 the Mega Millions section, second paragraph, the 22 sentence beginning each play board costs $1 was changed 23 to each ticket costs $1 per drawing. 24 COMMISSIONER CLOWE: Very good. 25 MS. BLIZZARD: Top of page nine, second 0123 1 column, the sentence that says the new matrix had some 2 language inserted after that, that says, and payout 3 structure. 4 COMMISSIONER CLOWE: Okay. 5 MS. BLIZZARD: Now we move over to page 6 14, under lottery and charitable bingo players, the 7 first sentence, the Texas Lottery player base consists 8 of adult Texans; we've inserted, consists primarily of 9 adult Texans, 18 years and older, et cetera. 10 COMMISSIONER CLOWE: Very good. 11 MS. BLIZZARD: Page 56, at this point, 12 you may wish to compare this language with the language 13 in your previous review copy. Under Texas lottery 14 players, the sentence indicated there was revised. 15 COMMISSIONER CLOWE: I think we want to 16 return to this for some discussion, but we'll go ahead 17 and finish your part. 18 MS. BLIZZARD: Okay. And the final 19 change is on page 68, under gray market machines, in 20 that first paragraph, the last two sentences were 21 deleted that read, capturing the entertainment dollars 22 of potential Texas Lottery and Charitable Bingo 23 players. 24 COMMISSIONER CLOWE: Very good. 25 MS. BLIZZARD: Those are all the changes 0124 1 I have. 2 COMMISSIONER CLOWE: Are there any 3 questions on those changes? 4 COMMISSIONER COX: No, sir. 5 MR. GREER: There's specifically two 6 items that I wanted to bring you attention to, one was 7 addressed a moment ago in a correction, it's on page 8 56, the demographic characteristics and trends section. 9 This is an area that Commissioner Cox has brought up on 10 a number of occasions and we have been looking at this 11 scenario and I know he's uncomfortable with it, so I 12 wanted to specifically address this issue and put it on 13 the record, that the Texas Government Code Section 14 466.021 states that the executive director shall, every 15 two years, employ an independent firm experienced in 16 demographic analysis to conduct a demographic study of 17 Texas lottery players. Since 1993, the School of 18 Communication at the University of Texas performed the 19 study for the Texas Lottery Commission. For 20 consistency of data comparison, we have continued to 21 use the School of Communication incorporating the same 22 survey instrument and methodology through the last 23 study, which was concluded in the fall of 2002. The 24 next demographic study is planned for the fall of 2004, 25 which is obviously just a few months away. As we 0125 1 approach this time, we will be looking at a new or 2 different approach for data collection as well 3 considering obtaining the services through a broader 4 search. We look forward to the results providing us 5 with an even better look at the Texas lottery player of 6 today, in reference to the demographic side. 7 The second thing that I wanted to 8 mention was really just a point of discussion, I guess, 9 in reference to page 88, and the fact that -- do you 10 want to go back to that? 11 COMMISSIONER CLOWE: Yeah. If you're 12 ready to finish your comment on this particular 13 subject -- 14 MR. GREER: Okay. In reference to the 15 demographic study, this is my final comment and then I 16 have one more thing to say on another matter. 17 COMMISSIONER CLOWE: All right. In 18 regard to that matter, you've indicated that 19 Commissioner Cox is not satisfied and has, I assume, 20 had some discussions with you about what his desires 21 are? 22 MR. GREER: Yes, sir. 23 COMMISSIONER CLOWE: And, Commissioner 24 Cox, I wonder if you want to elaborate on that, 25 particularly in regard to a copy of a letter that I 0126 1 have received from a public person, a former employee 2 of the Commission, relative to that subject. I assume 3 you've received a copy of it as well? 4 COMMISSIONER COX: I have. 5 COMMISSIONER CLOWE: Do you have any 6 thoughts that you'd share with us along the lines of 7 what your wants and desires are? 8 COMMISSIONER COX: Well, I have not 9 analyzed the letter in great detail, but I have skimmed 10 it, and some of the issues that are raised are right in 11 line with some of the issues that I have raised in the 12 past, and I think that, just as any communication that 13 we get from citizens is important, this one is one that 14 we should carefully consider the recommendations there 15 in light of the fact that we are getting -- coming upon 16 this procurement now and this will be an ideal time to 17 reconsider the way we've been doing it. 18 MR. GREER: Yes, sir, I agree. We had a 19 meeting yesterday because I too was in receipt of the 20 letter, as a staff, we talked about it. We analyzed 21 some points that were in there. There are some valid 22 issues, and we will look at that as a part of the 23 process of putting together the way the data is 24 collected and some of the things that we've done in the 25 UT study that we may want to look for a broader 0127 1 perspective, as I mentioned in my comment, so I 2 understand what you're saying and we'll implement that 3 as a part of the process. 4 COMMISSIONER CLOWE: Oaky. And, 5 Commissioner Cox, just so I'll understand better some 6 of your interests in this, your feeling is that the 7 demographic study has one plane of investigation, but 8 it would be better for the Commission and the 9 legislature and all those interested if it were a 10 multiplane investigation or study or demographics 11 giving not only the type of player, but the number of 12 times that player plays. Am I paraphrasing? Could you 13 help me with that? 14 COMMISSIONER COX: Exactly. Looking at 15 it just from the standpoint of a marketing tool, the 16 more information you can gather about not just what the 17 demographic groups participate in the games, but the 18 extent to which they participate enables you to better 19 understand who your customer is and better serve that 20 customer. Likewise, there are -- we have -- there are 21 provisions of the lottery act that say, in my words, 22 that we are not to target our product to certain groups 23 of folks, and I think the best assurance that we could 24 have that that is not being done is to look at that 25 issue and say, okay, here's the data and here's what it 0128 1 says, and if it says, well, by golly, it looks like 2 that participation is pretty much in line with what the 3 national participation is or expected participation and 4 the like, then I think we can say that we've got -- 5 we're in a fairway there. If it's over, then we might 6 say, well, let's look at things more carefully and be 7 sure that we're not doing anything that will cause 8 that. 9 COMMISSIONER CLOWE: I agree with that. 10 And my thought, as I read this letter, you know, there 11 were some points that I thought were certainly well 12 made, and one that struck me is, that there are certain 13 people that maybe are playing the lottery who don't 14 have telephones and brought to question, well, how do 15 you contact those lottery players and get information 16 on them? So I'm very glad to see that you're pursuing 17 this and I'm appreciative of the fact that we've 18 received this letter and got some comments in it that 19 you're looking at, Reagan, and that you have certainly 20 an interest in this from that portion of the strategic 21 plan, which was covered in the external factors 22 affecting the services which we were talking about 23 today. 24 MR. GREER: Right. And I'd ask the 25 marketing team to come on board and hear the discussion 0129 1 as well. There's a number of different scenarios that 2 we're going to look at, one of those would be phones. 3 However, we've been utilizing the comptrollers report 4 that 96 percent of Texans do have a phone, but I think 5 that we do have to take the comments that were made in 6 that letter and utilize them as we move forward into a 7 new direction trying to accumulate the data. 8 COMMISSIONER COX: To that, Reagan, I 9 would say that the kind of thing that you have to be 10 aware of in a market research project is it could be 11 very well be that 25 percent of your records come from 12 people that don't have phones. 13 MR. GREER: Exactly. Exactly. And 14 that, again, reinforces the fact that we just got an 15 opportunity to re-look at the issue. And the fact that 16 it's coming up in the fall is great timing, and with 17 your concerns and some of those that are brought up, I 18 think we can move in a positive way to come forward 19 with a little better overview of who the lottery player 20 is. 21 COMMISSIONER CLOWE: Not to make it too 22 simple, how many of those people have cell phones who 23 are not in the directory? I think that's a 24 fast-increasing phenomenon, so those are good questions 25 now to ask and see what the basis of our sampling is. 0130 1 COMMISSIONER COX: And how those people 2 are going to -- how the vendor is going to bid on this 3 thing or not address those issues. 4 MR. GREER: Right. Well, we'll keep you 5 on the list as we move through the process and have 6 specifics we can get into. 7 COMMISSIONER CLOWE: Very good. Now, 8 you wanted to make a second point, I think? 9 MR. GREER: The second point is on page 10 88 in the strategic plan. I'll just draw your 11 attention to the fact that we are looking forward in 12 reference to the agency having an intranet, an internal 13 means of communication. One aspect of that is that 14 there will be a section of the intranet that will be 15 devoted to the commissioners. You just need to -- I 16 just wanted to get it on your radar screen to think 17 about how you want to utilize that and if you want to 18 utilize it in reference to putting out a message or 19 kind of whatever your wishes are is the direction that 20 we'll go on that. We don't need an answer today, 21 obviously, but I did want to bring it to your attention 22 that the intranet is something that is moving along, 23 and I mentioned it in my comments a moment ago, but the 24 involvement of the commissioners as a whole is 25 something that I really want to have your input on. 0131 1 COMMISSIONER CLOWE: Very good. Any 2 comments, Commissioner Cox? 3 It's my understanding that the general 4 counsel feels it would be the proper practice for us to 5 recodify approval of the strategic report as amended. 6 With that understanding, I move the adoption of this 7 lastly-amended strategic plan. 8 COMMISSIONER COX: Second. 9 COMMISSIONER CLOWE: The vote is -- all 10 in favor, aye. Opposed no. Two/zero in favor. 11 MS. BLIZZARD: Thank you very much. 12 COMMISSIONER CLOWE: Thank you, Karen. 13 Is there any other business to come 14 before the Commission at this time? 15 MS. KIPLIN: Before you adjourn, Mr. 16 Chairman, let me just make sure the record is very 17 clear. The prior vote incorporated the earlier 18 amendments. This is just an amendment to the amended 19 strategic plan. 20 COMMISSIONER CLOWE: Thank you. And the 21 record will reflect that only Commissioner Cox and I 22 voted on this. 23 Any other business. 24 MR. GREER: Mr. Chairman? 25 COMMISSIONER CLOWE: Sir. 0132 1 MR. GREER: In reference to one of our 2 earlier conversations, I'm reading my e-mails briefly 3 before the meeting shuts down, and I do have one in 4 regard to the Sunset Advisory Commission meeting, which 5 you had asked about earlier, it appears that the 6 Lottery Commission has been scheduled for July the 14th 7 and that the agenda is out and we will follow up with 8 you on that, but I did want to make you aware of that 9 information. 10 COMMISSIONER CLOWE: Great. Mr. Atkins? 11 MR. ATKINS: Following up on that, Mr. 12 Chairman, I had indicated earlier that the Advisory 13 Committee meeting is tentatively scheduled for July the 14 14th, so we are going to be contacting them about 15 possibly moving that back a week. 16 COMMISSIONER CLOWE: I think that's a 17 good idea because I believe there's another committee 18 hearing scheduled on the 14th as well, isn't there. 19 MR. GREER: Yes, sir, for 2:00 that day. 20 COMMISSIONER CLOWE: Yeah, so we 21 actually have two meetings scheduled that day. I think 22 that would be beneficial, Billy. 23 Anything further? Are you sure? 24 Thank you all very much. The meeting is 25 adjourned at 2:39. Appreciate you attendance. 0133 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, KIMBERLYE A. FURR, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify that 8 the above-captioned matter came on for hearing before 9 the TEXAS LOTTERY COMMISSION as hereinafter set out, 10 that I did transcribe, to the best of my ability, an 11 audiotape of the proceedings up until the point that I 12 arrived, and then I did, in shorthand, report said 13 proceedings from page 36 and continuing until 14 conclusion of hearing, and that the above and foregoing 15 typewritten pages contain a full, true, and correct 16 computer-aided transcription of the audiotape as well 17 as my shorthand notes taken on said occasion. 18 Witness my hand on this the 12th day of July, 19 2004. 20 _________________________ 21 KIMBERLYE A. FURR Texas CSR No. 6997 22 Expiration Date: 12/31/05 1801 Lamar Boulevard 23 Mezzanine Level Austin, Texas 78701 24 (512) 474-4363 25