0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE TEXAS LOTTERY COMMISSION 7 WEDNESDAY, JULY 8, 2009 8 9 COMMISSION MEETING 10 WEDNESDAY, JULY 8, 2009 11 12 BE IT REMEMBERED THAT on Wednesday, 13 the 8th day of July 2009, the Texas Lottery Commission 14 meeting was held from 9:15 a.m. to 1:13 p.m., at the 15 Offices of the Texas Lottery Commission, 611 East 6th 16 Street, Austin, Texas 78701, before CHAIRMAN MARY ANN 17 WILLIAMSON, and COMMISSIONERS J. WINSTON KRAUSE and 18 DAVID J. SCHENCK. The following proceedings were 19 reported via machine shorthand by Kim Pence, a 20 Certified Shorthand Reporter of the State of Texas, 21 and the following proceedings were had: 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONERS Mr. J. Winston Krause 5 Mr. David Schenck 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 DEPUTY EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS PAGE 2 3 AGENDA ITEM NO. I - Meeting called to order....... 8 4 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action on the process 5 for conducting Texas Lottery Commission meetings.. 14 6 AGENDA ITEM NO. III - Report, possible discussion and/or action on the Bingo Advisory Committees 7 activities, including the May 6, 2009 Bingo Advisory Committee meeting........................ 28 8 AGENDA ITEM NO. IV - Report, possible discussion 9 and/or action on the Bingo Advisory Committee Annual Report..................................... 30 10 AGENDA ITEM NO. V - Report, possible discussion 11 and/or action on the 2008 Charitable Bingo Annual Report............................................ 36 12 AGENDA ITEM NO. VI - Report, possible discussion 13 and/or action on the Bingo Advisory Committee..... 37 14 AGENDA ITEM NO. VII - Report, possible discussion and/or action on calendar year 2009 1st quarter 15 conductor information............................. 42 16 AGENDA ITEM NO. VIII - Report by the Charitable Bingo Operations Director and possible discussion 17 and/or action on the Charitable Bingo Operations Divisions activities, including updates on 18 status of licensees, rulemaking and form revisions, audits, pull-tab review, special 19 projects, and upcoming operator training.......... 47 20 AGENDA ITEM NO. IX - Report, possible discussion and/or action on lottery sales and revenue, game 21 performance, new game opportunities, advertising, market research, and trends....................... 48 22 AGENDA ITEM NO. X - Report, possible discussion 23 and/or action on transfers to the State........... 55 24 25 0004 1 TABLE OF CONTENTS PAGE 2 AGENDA ITEM NO. XI - Report, possible discussion 3 and/or action on Lottery Operations and Services Contract Amendment No. 8 credit calculation....... 58 4 AGENDA ITEM NO. XII - Report, possible discussion 5 and/or action on lottery consumer protection best practices......................................... 59 6 AGENDA ITEM NO. XIII - Report, possible discussion 7 and/or action on the 81st Legislature............. 76 8 AGENDA ITEM NO. XIV - Report, possible discussion and/or action on the Sunset process involving the 9 Texas Lottery Commission.......................... 80 10 AGENDA ITEM NO. XV - Report, possible discussion and/or action on the agencys advertising 11 services contract, including amending the contract.......................................... 80 12 AGENDA ITEM NO. XVI - Report, possible discussion 13 and/or action on the agencys headquarters lease.. 81 14 AGENDA ITEM NO. XVII - Consideration of and possible discussion and/or action, including 15 proposal, on new rule 16 TAC 401.317 relating to terminal printed instant game rule................ 85 16 AGENDA ITEM NO. XVIII - Consideration of and 17 possible discussion and/or action, including proposal, on amendments to 16 TAC 401.301 18 relating to General Definitions................... 109 19 AGENDA ITEM NO. XIX - Consideration of and possible discussion and/or action, including 20 proposal, on amendments to 16 TAC 401.302 relating to Instant Game rules.................... 109 21 AGENDA ITEM NO. XX - Report, possible discussion 22 and/or action on external and internal audits and/or reviews relating to the Texas Lottery 23 Commission, and/or on the Internal Audit Departments Activities, including the annual 24 financial audit and Internal Audit charter........ 8 25 0005 1 TABLE OF CONTENTS PAGE 2 3 AGENDA ITEM NO. XXI - Report, possible discussion and/or action on the Mega Millions game and/or 4 contract.......................................... 121 5 AGENDA ITEM NO. XXII - Report, possible discussion and/or action on GTECH Corporation................ 121 6 AGENDA ITEM NO. XXIII - Report by the Executive 7 Director and/or possible discussion and/or action on the agencys operational status, agency 8 procedures, and FTE status........................ 121 9 AGENDA ITEM NO. XXIV - Consideration of the status and possible entry of orders in: 10 A. Docket No. 362-09-3444 River Mart B. Docket No. 362-09-3664 Liquor Barn 11 C. Docket No. 362-09-3640 Saigon Tai Pei Supermarket 12 D. Docket No. 362-09-3641 P & T Foodmart E. Docket No. 362-09-3446 Cullen Food Mart 13 F. Docket No. 362-09-990331.B-D -- In the Matter of the Refusal to Add Certain 14 Names to the Texas Lottery Commissions Registry of Approved Bingo Workers: 15 Melanie Brown, Shannon Crow, Larry Demers, Estella Fontanez, Rickey Heredia, Jonathan 16 Herrera, Dustin Jackson, Michael Jackson, Derrick Jones, Ramon Martinez III, Joseph 17 Murphy, Robert, Strange Jr., Rebecca Vera G. Docket No. 362-09-1430.B American 18 Vietnam Veterans.......................... 128 19 AGENDA ITEM NO. XXV - Consideration and possible discussion and/or action on the appointment and 20 employment of the Executive Director.............. 132 21 AGENDA ITEM NO. XXVI - Public comment............. 132 22 23 24 25 0006 1 TABLE OF CONTENTS PAGE 2 3 AGENDA ITEM NO. XXVII - Commission may meet in Executive Session: 4 A. To deliberate the appointment, employment, and duties of the Executive Director 5 pursuant to Section 551.074 of the Texas Government Code 6 B. To deliberate the duties and evaluation of the Deputy Executive Director pursuant 7 to Section 551.074 of the Texas Government Code 8 C. To deliberate the duties and evaluation of the Internal Audit Director pursuant 9 to Section 551.074 of the Texas Government Code 10 D. To deliberate the duties and evaluation of the Charitable Bingo Operations 11 Director pursuant to Section 551.074 of the Texas Government Code 12 E. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 13 the Texas Government Code F. To deliberate the duties of the Human 14 Resources Director pursuant to Section 551.074 of the Texas Government Code 15 G. To receive legal advice regarding pending or contemplated litigation pursuant to 16 Section 551.071 (1) (A) and/or to receive legal advice regarding settlement offers 17 pursuant to Section 551.071 (1)(B) of the Texas Government Code and/or to receive 18 legal advice pursuant to Section 551.071(2) of the Texas Government Code, 19 including but not limited to: First State Bank of DeQueen et al. v. Texas 20 Lottery Commission, James T. Jongebloed v. Texas Lottery Commission Texas Lottery 21 Commission v. Leslie Warren, Texas Attorney General Child Support Division, 22 Singer Asset Finance Company L.L.C., and Great-West Life & Annuity Insurance 23 Company 24 25 0007 1 TABLE OF CONTENTS PAGE 2 3 Gametech International et al. v. Greg Abbott Employment law, personnel law, procurement 4 and contract law, evidentiary and procedural law, and general government law 5 Lottery Operations and Services contract Mega Millions game and/or contract 6 Request for Attorney General Opinion No. RQ-0771-GA.............................. 133 7 AGENDA ITEM NO. XXVIII - Return to open session 8 for further deliberation and possible action on any matter discussed in Executive Session........ 134 9 AGENDA ITEM NO. XXIX - Adjournment............... 134 10 PROCEEDINGS CONCLUDED............................ 134 11 REPORTER'S CERTIFICATE........................... 135 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0008 1 P R O C E E D I N G S 2 WEDNESDAY, JULY 8, 2009 3 (9:15 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call the meeting to order at 9:15. Today is 7 July the 8th, and Commissioner Schenck and Krause are 8 present; so we have a quorum. 9 AGENDA ITEM NO. XX 10 The first item -- actually we're going 11 to move Item 20, and we'll start with that. That's 12 the internal audit item, and we have our external 13 auditors as well here today. 14 And so, Cat, if you'll go ahead and 15 start, please? 16 MS. MELVIN: Okay. Thank you. Good 17 morning, Commissioners. For the record, Catherine 18 Melvin, Internal Audit Director. I have a few items 19 of update this morning. 20 The first item, I'd like to give you an 21 update regarding the post-payment audit. That's a 22 standard audit conducted by the Controller's office. 23 They typically come out to agencies, and they review 24 agency expenditures over a period. 25 We had an exit conference with the 0009 1 auditors last week, and I just wanted to share with 2 you that it was a very positive exit conference. The 3 auditors are very complimentary. That's not to say 4 that we didn't have some findings, but the auditors 5 were -- their comments were very favorable and 6 positive regarding the amount of progress within the 7 agency. So I think that's something to be proud of. 8 And we have not yet received their final results, but 9 we should receive those before the fiscal year end. 10 The second item is an action item. I'm 11 requesting the Commissioners' approval. The Internal 12 Audit Charter is a required document under auditing 13 standards. The charter lays out the purpose, 14 responsibilities and other requirements of the 15 internal audit function. 16 At this time, we're not seeking to make 17 any changes to the contents of the document. However, 18 we certainly do need to update it with these 19 signatures to reflect our new slate of Commissioners. 20 And so with that, I'm asking your 21 approval of that document. 22 CHAIRMAN WILLIAMSON: Commissioners, do 23 you-all have any questions? 24 COMM. KRAUSE: No, ma'am. 25 COMM. SCHENCK: When you say you're not 0010 1 making any changes to the document, this is -- was in 2 place before? 3 MS. MELVIN: Yes, sir. 4 COMM. SCHENCK: And we're just 5 readopting it? 6 MS. MELVIN: Yes, sir. 7 COMM. SCHENCK: Okay. Well, that's not 8 terribly controversial. I suppose someone has 9 checked -- when you say it's standards driven -- 10 MS. MELVIN: Yes, sir. 11 COMM. SCHENCK: -- have you gone back 12 and looked to see if there's changes to the standards? 13 MS. MELVIN: Yes, we have. And actually 14 another reason to update the charter is that Internal 15 Audit is due a peer review. That answers the question 16 who audits the auditors. And so in preparation for 17 our peer review, this -- you know, we realized that we 18 wanted to update this, and so we made the match 19 against. There have been changes in the standards, 20 but none that impact our charter. 21 COMM. SCHENCK: Okay. But we'll file 22 the standards as well? 23 MS. MELVIN: Absolutely. 24 COMM. SCHENCK: Okay. Thank you. 25 CHAIRMAN WILLIAMSON: Would someone like 0011 1 to make a motion -- oh, go ahead -- to adopt -- to 2 adopt the -- 3 COMM. SCHENCK: I'll make the motion to 4 adopt the recommendation. 5 COMM. KRAUSE: And I'll second. 6 CHAIRMAN WILLIAMSON: All in favor? 7 COMM. SCHENCK: Aye. 8 CHAIRMAN WILLIAMSON: Aye. 9 COMM. KRAUSE: Aye. 10 MS. KIPLIN: Commissioners, I've got the 11 Audit Charter, and I'll pass it through. 12 COMM. SCHENCK: Do you have a pen as 13 well? 14 MS. KIPLIN: Yes. 15 MS. MELVIN: Okay. And my last item, 16 I'd like to invite the auditors who will be performing 17 our annual financial audit. They're with the firm 18 Maxwell, Locke and Ritter. I'll ask them to join me 19 at the table. 20 MR. KRCHNAK: Thanks, Cat. For the 21 record, Scott Krchnak, Audit Partner with Maxwell, 22 Locke and Ritter. 23 MS. LEVENTHAL: And I'm Kelli Leventhal. 24 I'll be managing the audit, and I'm also with Maxwell, 25 Locke and Ritter. 0012 1 We just thought today we would let you 2 know just a basic timeline of our audit this year. 3 Next week we're going to be starting interim work, and 4 actually each of the Commissioners will be hearing 5 from me fairly soon. It's a part of our planning 6 process, and I want to make sure to have a discussion 7 with you each privately just to see if there's any 8 concerns that you have that we should address during 9 the audit. 10 And then after we complete our interim 11 procedures, we'll come out and do an inventory 12 observation at the end of the month. And then back -- 13 in November we'll come back and finish up the audit. 14 And then the goal is for the report to be issued in 15 December, which is consistent with prior years. 16 And do you have any questions or -- 17 COMM. SCHENCK: I think for the benefit 18 of those who are here following this, can you remind 19 us the scope of the audit, what limitations we're 20 working under, if any? 21 MS. LEVENTHAL: Sure. 22 MR. KRCHNAK: Well, there are no scope 23 limitations. The scope of the audit is for us to 24 conduct an audit in order to hopefully render an 25 unqualified opinion, which is commonly referred to as 0013 1 a clean opinion, that the financial statements are 2 materially correct within the scope of generally 3 accepted auditing standards. We don't test 4 everything. I mean, we test enough to enable us to 5 express an opinion that the final statements are 6 materially correct. So there are no scope 7 limitations, but just wanted to let you know that 8 we're not going to test everything. 9 COMM. SCHENCK: Okay. I appreciate 10 that. Thank you. 11 CHAIRMAN WILLIAMSON: Commissioner 12 Krause, do you have any questions? 13 COMM. KRAUSE: No, ma'am. 14 CHAIRMAN WILLIAMSON: All right. And, 15 of course, you guys know to call us or contact us 16 directly if you need to? 17 MR. KRCHNAK: Yes. 18 MS. LEVENTHAL: Of course, yes. 19 MR. KRCHNAK: And the actual deadline 20 for the annual financial report is December 20th. 21 MS. MELVIN: Yes, sir. 22 MR. KRCHNAK: And we've gone over -- as 23 Kelli mentioned, last week we had a planning meeting 24 and have our timelines scheduled out to where we'll 25 meet that deadline to get the report filed with the 0014 1 state. 2 CHAIRMAN WILLIAMSON: Thank have. 3 MS. MELVIN: Okay. Any other questions 4 for us? 5 (No response) 6 MS. MELVIN: Okay. Thank you so much. 7 CHAIRMAN WILLIAMSON: Thank you. 8 MS. LEVENTHAL: Thank you. 9 AGENDA ITEM NO. II 10 CHAIRMAN WILLIAMSON: All right. The 11 next item is just discussion on the process of 12 conducting Texas Lottery Commission meetings. This is 13 a carryover from last month. It is more -- I had 14 asked Kim to carry that over -- generally basically 15 about just structuring how we handle public comment 16 and those sorts of things. And, you know, we had -- I 17 had presented or you had some information from other 18 agencies how they handled that. And so I was going to 19 bring that up and see if you-all had any -- anything 20 you felt strongly about one way or the other. And I 21 was going to have some -- kind of my recommendations 22 and see how you guys thought -- what you fellow 23 Commissioners thought about that. 24 COMM. SCHENCK: Do we have a report from 25 someone on what we have found at other agencies? 0015 1 MS. KIPLIN: Yes, and I've got copies of 2 that. I sent it to you previously. Let me just pass 3 this down in case you want to take a look at it. 4 And if I may just put a few comments on 5 the record? And, of course, your meetings are 6 conducted by -- pursuant to the Open Meetings Act. 7 The Open Meetings Act requires meetings of a 8 governmental body to be conducted in the open so that 9 it gives the public the opportunity to come and see 10 what the business of the government is. 11 The Open Meetings Act does not require 12 or -- that the Commission receive public comment. 13 It's interesting, but it doesn't. And I would say 14 that there is a trend, and there's been a long trend, 15 for state agencies to allow for public comment at 16 their -- at their board meetings. You can have public 17 comment on each item. You can have a public comment 18 portion I'd liken to an open mic about the business of 19 the agency. 20 As it relates to a public comment item, 21 because it's not specifically noticed, that restricts 22 the deliberations of the governing body. You can 23 deliberate only to the extent of whether you want to 24 add that specific item to a future Commission meeting 25 agenda so that the public has -- has notice of that. 0016 1 COMM. SCHENCK: I'm sorry. Can I -- 2 MS. KIPLIN: And just my survey of what 3 goes on at other agencies -- I interrupted you. 4 COMM. SCHENCK: Yeah. No, I'm sorry. 5 Go ahead. 6 MS. KIPLIN: A survey of what goes on at 7 other agencies is that they generally allow for public 8 comment. There's a limitation in the time on the 9 public comment. There are agencies that require those 10 that want to speak at those commission meetings to 11 file before the beginning of the commission meeting 12 their witness affirmation form or their request to 13 speak on a particular item so that there's an 14 orderly -- orderly conducting of the business of the 15 agency. And even in that regard, you can -- you can 16 impose time limits, if you want, on those particular 17 items. 18 Historically for this agency, when we 19 began back in '93 as a Commission, the Commission did 20 allow comment from the very beginning on each item 21 specifically noticed on the agenda, but not a public 22 comment item. Then I believe with the beginning of 23 Chairman Tom Clowe's tenure, he had a public comment 24 item added. 25 And if you have any specific questions I 0017 1 haven't addressed, I'd be glad to try to respond. 2 COMM. SCHENCK: I just have a couple of 3 quick questions. As I understand it, Kim, if we don't 4 have a public comment item noticed in our public 5 notice, we can't interact with whoever it is that's 6 come up to talk to us? 7 MS. KIPLIN: If you have a public 8 comment item noticed up, that allows that person to 9 come and speak about any topic that they wish that's 10 not really specifically noticed. 11 COMM. SCHENCK: But generally if someone 12 wants to talk about any item that we have noticed, 13 they fill out a witness affirmation form, they come 14 and we can interact with them. 15 MS. KIPLIN: That's right, because 16 that's specifically noticed, and that gives the public 17 notice that you're going to have -- you're going to be 18 talking about that item in particular, and so those 19 that are interested can come and watch those 20 deliberations. 21 COMM. SCHENCK: So the fear is that 22 someone will come with -- in response to some public 23 comment opportunity and bring up a potentially 24 important issue that hasn't been noticed so that no 25 one else in the public had an opportunity to know what 0018 1 wold be discussed, and then we'd go on and discuss it? 2 MS. KIPLIN: Well -- and I would step in 3 as the Open Meetings, you know, Controller and say 4 "I'm sorry, Commissioners, that's not specifically 5 noticed, and so you cannot talk about that, except to 6 the extent of handling it." 7 COMM. SCHENCK: But the noticing of an 8 item for public comment is not sufficient to notice it 9 for the public? 10 MS. KIPLIN: Not for -- not for you-all 11 to engage in specific deliberations on that item 12 because the public hasn't been given notice of what is 13 the particular matter that is to be discussed. 14 COMM. SCHENCK: I assume there's law on 15 that? 16 MS. KIPLIN: Yes. 17 COMM. SCHENCK: Okay. 18 MS. KIPLIN: Yes, there is. Your 19 deliberations are limited to deliberating about 20 whether you want to put it on a future agenda. If 21 there is a particular question or inquiry, while 22 you're not required to respond to that, the Open 23 Meetings Act does allow for you to respond 24 specifically to the inquiries that relates to a policy 25 that the governing body has of that nature, but no -- 0019 1 no real deliberations among the three and no real 2 engaging with the commenter beyond listening to that 3 comment. And as I mentioned, the deliberations, they 4 are being limited the way they are. 5 As it relates to -- as it relates to the 6 specific item, of course that item has been noticed, 7 the public has been given notice of that. And so you 8 can engage as much as you want under that particular 9 item. 10 Now, I would say that when you receive 11 comment under a particular item, that is still 12 comment, that is still public comment. So really the 13 way that it's set up, frankly, Commissioners, it 14 gives -- it gives a person the opportunity to provide 15 comment under two different methods: One, if it's not 16 even noticed and they just want to come and comment, 17 the other one if they want to come and they want to 18 comment on a particular item. 19 COMM. KRAUSE: Well, is there a 20 distinction between asking questions of the 21 commentator and deliberating? 22 MS. KIPLIN: No, there really isn't any 23 more. There used to be a briefing exception that 24 really was a staff briefing where, you know, we 25 could -- we could talk to you, you could ask us 0020 1 questions, but you could not deliberate among the 2 three, and that was eliminated. And so in terms of a 3 briefing, no, there really is no difference. 4 COMM. KRAUSE: Well, do we have the 5 ability to change that? Because I see a pretty big 6 distinction between having some public comment and 7 wanting to ask some questions, you know, to get more 8 information and deliberating with the intention of 9 trying to arrive at a decision. 10 MS. KIPLIN: I think the change to 11 address your point would need to be made in the Open 12 Meetings Act. 13 COMM. SCHENCK: The problem, I guess, is 14 it's not noticed, whatever the topic is that they're 15 trying to engage us in hasn't been noticed. And I 16 guess the fact that we transcribe these meetings is 17 not enough -- 18 MS. KIPLIN: Right. 19 COMM. SCHENCK: -- to satisfy that 20 concern. Even if we were to then every time we 21 engage in a debate with someone on an unnoticed topic, 22 let's say as part of public comment, we couldn't 23 automatically put that on our next agenda as a meeting 24 item so that anyone who was potentially aggrieved 25 could appear at the next meeting and discuss the same 0021 1 issue with us? 2 MS. KIPLIN: Well, the point of the Open 3 Meetings notice is to give the public -- 4 COMM. SCHENCK: Advanced notice? 5 MS. KIPLIN: -- advanced notice, right. 6 But your deliberations can be to putting it onto a 7 future agenda item. 8 Now, for the most part when somebody 9 comes up under the public comment, I will tell you 10 that what I'm doing is looking at the agenda to see 11 whether what they're talking about would come 12 underneath another item anyway because then it's -- 13 then it has been noticed. And then I would -- I would 14 have a dialogue with the Chairman on, you know, "It 15 looks like this is under another topic." But there 16 really is that restriction on Commission deliberations 17 to allow for the public to have an opportunity to have 18 notice on what is being discussed, what the business 19 of the government is. 20 CHAIRMAN WILLIAMSON: And my whole point 21 in doing this is probably more of a form rather than a 22 substance, more that I want all the witness 23 affirmation forms before our meeting starts, and it 24 identifies whether it's an agenda item or just public 25 comment and then have some time limitations in place. 0022 1 That was -- that's really sort of where I was headed 2 with this. And also to encourage written testimony to 3 be submitted as well that can be put into the record. 4 So it was -- it was more of that sort of 5 a thought process that I had on this rather than 6 trying to limit public comment, which I don't want to 7 do, or if something comes up and we want to bring it 8 up at another meeting, we could certainly do that, if 9 we decided to do that. 10 So that was sort of to give the public 11 the information, if you want to come and speak, we 12 want you to do that, but be sure that you have your 13 form filled out before the meeting starts and identify 14 what it is that -- whether it's on an agenda item or 15 just during the public comment period. It may be 16 limited to five minutes. I'm thinking five minutes 17 for comment on the open mic end as well as the agenda 18 item, and then for just public comment, making it for 19 a maximum of 30 minutes. 20 Those were my thoughts. And like I 21 said, I'm just throwing it out there for discussion 22 amongst -- 23 COMM. SCHENCK: I think this is a good 24 discussion, and I'm glad we're having it in public. I 25 think that -- my thought would be on that open mic -- 0023 1 I'm going to call it the public opportunity to rant 2 because apparently we can't engage. We just sit and 3 listen politely, and we don't speak back. I think 4 everyone would want a time limit on that. 5 Enforcing a lime limit is a challenge, 6 and it puts the Chair in a potentially awkward 7 position. I find that lights are useful, green, 8 yellow, red. Someone would have to operate them so 9 it's the light that cuts somebody off and not the 10 Chair. And then, you know, what can you do if the 11 light is red, it's time for you to not take up anymore 12 time. 13 On the regular testimony, I fear that if 14 you put time limits on that, people will feel that 15 they've now got the invitation to run the floor and 16 until their light turns on they need to keep speaking, 17 which right now without the time limits on the actual 18 testimony, when people fill out witness affirmation 19 forms, I think they've been pretty good about staying 20 on message and not feeling like they need to fill up 21 some amount of time. 22 CHAIRMAN WILLIAMSON: Right. And, of 23 course, it's at the discretion of the Chair -- 24 COMM. SCHENCK: Right. 25 CHAIRMAN WILLIAMSON: -- I think to a 0024 1 certain degree, at least that's how -- whether we want 2 to allow additional time or -- 3 COMM. SCHENCK: I think that's -- I 4 think that's probably the better way to do it. I 5 think when we're having testimony on a noticed item, I 6 think when we've gotten to the point where the Chair 7 believes that the Commissioners have heard tough, I 8 think, you know, asking the question of "Is there 9 anything else that you think is important for us to 10 know" tends to move people along. 11 But I'm fearful -- I don't know, 12 Winston, what your thoughts are, but if you give 13 people -- maybe it's because I'm used to dealing with 14 lawyers. If you give them five minutes, they're going 15 to take five minutes, maybe seven or eight, whereas if 16 you just say "speak," they'll finish up. 17 (Laughter) 18 COMM. KRAUSE: You know, I don't really 19 have any comment about that. Although the best 20 advocates I've seen are those that get in and make 21 their point very succinctly and respectful of the 22 listners' time. So people who can't -- you know, who 23 don't understand that are not advancing their position 24 very well. 25 COMM. SCHENCK: We have a lot of people 0025 1 who have come here and don't advance their position 2 particularly well, but I'm -- and I think we want to 3 help them, to the extent we can, to do that for 4 everyone's benefit. But my sense is on the regular 5 testimony if you tell people they have five minutes, I 6 think we'll see a lot more people taking up five 7 minutes than what is usually accomplished in one or 8 two. 9 But on that open mic public comment 10 section, I think that there's a different kind of 11 speaker that comes to speak in connection with an 12 unnoticed item, and I think that speaker is more 13 likely to go long than the person who was here for a 14 particular noticed reason to talk to us. 15 COMM. KRAUSE: Well, I am very fine with 16 adopting the kind of rules that the Chair is 17 proposing. 18 COMM. SCHENCK: I am, too. My 19 suggestion is, though, that we would -- if we're going 20 to have formal time limits, I would direct it to the 21 public comment part. And then with respect to all the 22 rest of the testimony, I would leave the Chair in the 23 position to just encourage people to -- 24 COMM. KRAUSE: Wrap it up? 25 COMM. SCHENCK: -- finish up. 0026 1 CHAIRMAN WILLIAMSON: Then let's do 2 this: Kim, I think you have enough information to 3 just kind of write up guidelines, to write up 4 something that we can look at and share with all of us 5 before the next meeting. 6 And I'm inclined -- I'm not sure we 7 necessarily even have to put them in rules. I think 8 we can just set a policy, if I understand that 9 correctly, which we may want to just do that. 10 MS. KIPLIN: I think there are agencies 11 that do adopt rules. I'm also aware of agencies that 12 do have guidelines and they post them on their Website 13 for all to know what the guidelines are in terms of 14 how that Commission meeting is going to be conducted 15 as it relates to comment. 16 COMM. SCHENCK: Why can't we just put it 17 on the witness affirmation form? 18 MS. KIPLIN: We could and -- we could. 19 We could put it in a bunch of different places. 20 CHAIRMAN WILLIAMSON: So if you would 21 just write up something that we can start looking -- 22 MS. KIPLIN: Sure. 23 CHAIRMAN WILLIAMSON: -- at and 24 considering? 25 MS. KIPLIN: I'll be glad to. And just 0027 1 in summary what I'm hearing is witness affirmation 2 forms filed before the convening of the meeting? 3 CHAIRMAN WILLIAMSON: Yes. 4 MS. KIPLIN: Yes? Okay. On the public 5 comment -- 6 COMM. SCHENCK: Would we state that as a 7 preference? 8 CHAIRMAN WILLIAMSON: No. I think we 9 need to be aware before the meeting starts what -- 10 COMM. SCHENCK: Okay. 11 CHAIRMAN WILLIAMSON: -- comment is out 12 there. 13 MS. KIPLIN: Public comment, a time 14 limitation, that's on the public comment agenda. And 15 what's your preference, three, five minutes? 16 CHAIRMAN WILLIAMSON: Five minutes. 17 COMM. SCHENCK: I think we -- maybe what 18 we ought to do today, Kim, is someone should keep 19 track of the testimony that we receive. I think -- 20 MS. KIPLIN: Sure. 21 CHAIRMAN WILLIAMSON: Okay. Let's just 22 kind of get a sense of that. 23 COMM. SCHENCK: We'll get a sense. 24 CHAIRMAN WILLIAMSON: Okay. 25 COMM. SCHENCK: I think five minutes can 0028 1 feel like an awfully long time. 2 MS. KIPLIN: Okay. And then what I'll 3 do is I'll draft up guidelines, and I'll circulate it 4 to each of you individually, of course, so we don't 5 violate the Open Meetings Act, prior to the next 6 Commission meeting for you-all's review. And then 7 you'd like me to carry this item -- 8 CHAIRMAN WILLIAMSON: Please. 9 MS. KIPLIN: -- to the next Commission 10 meeting? I will do that. 11 CHAIRMAN WILLIAMSON: Yes, let's carry 12 it to the next meeting. 13 AGENDA ITEM NO. III 14 CHAIRMAN WILLIAMSON: Let's see. The 15 next item is the Bingo Advisory Committee's 16 activities, including the May 6th meeting. And I 17 believe Suzanne Taylor is here. 18 MS. TAYLOR: Yes, ma'am. Good morning, 19 Commissioners. My name is Suzanne Taylor. I Chair 20 the BAC. 21 Commissioners, a copy of the report of 22 that last BAC meeting held on May 6, 2009 has been 23 included in your booklet for your review. A copy of 24 it has been supplied to the court reporter to be 25 included as part of the report. And if you have any 0029 1 questions, I'd be glad to answer those. 2 And also at this time, I would like to 3 tell Commissioner Schenck how much we appreciate you 4 taking the time to attend our meeting. 5 COMM. SCHENCK: My pleasure. I enjoyed 6 it. 7 MS. TAYLOR: Were there any questions? 8 CHAIRMAN WILLIAMSON: Let's see. Not on 9 this particular item, I don't have any. 10 MR. SANDERSON: Item No. 2 -- or I'm 11 sorry -- Item No. 3? 12 CHAIRMAN WILLIAMSON: Right. Yeah, the 13 Bingo Advisory Committee meeting. 14 MR. SANDERSON: Yes. 15 CHAIRMAN WILLIAMSON: Yes. Okay. I 16 don't have any questions. 17 COMM. KRAUSE: No questions. 18 COMM. SCHENCK: Suzanne, one thing. On 19 my solicitation for the views of the members, I'm 20 assuming we'll have a decision from you on your 21 recommendations to us at the next BAC meeting. 22 COMMISSIONER SCHENCK: That was the 23 goal. I did request the members to all think about it 24 and come up with what they thought would be an 25 appropriate response, and we'll see what their 0030 1 thoughts are at the next meeting. 2 COMM. SCHENCK: Okay. I would like you 3 to call the question, if you could, at the next 4 meeting. 5 MS. TAYLOR: Absolutely. 6 COMM. SCHENCK: Thank you. 7 AGENDA ITEM NO. IV 8 CHAIRMAN WILLIAMSON: Okay. The next 9 item is the annual report. Oh, Suzanne, the annual 10 report, or did we just do that? 11 MS. TAYLOR: Commissioners, a copy of 12 the 2008 annual report has also been included in your 13 book for a review. The court reporter does have a 14 copy of that report. And if you have any questions on 15 our annual report, I would be glad to answer those at 16 this time. 17 COMM. SCHENCK: It seems attendance 18 continues to go down a bit. 19 MS. TAYLOR: It has, although -- I mean, 20 the best thing about this whole report is this is the 21 lowest drop in attendance that we've had since about 22 2002, between '07 and '08. So it has actually slowed 23 a slight bit. But, yes, attendance remains to be the 24 main problem. 25 Whether the attendance is going down 0031 1 because of the other gambling opportunities that are 2 available for the players or whether the decrease in 3 the number of organizations actually conducting bingo 4 games, I think it all contributes to that decrease in 5 attendance. 6 COMM. SCHENCK: Well, Suzanne, what's 7 your sense? Do you think it's one more than another? 8 Are both important? I mean, what is it that you think 9 is driving this? Because at this point a lot of more 10 victories like this and we'll end up with no bingo at 11 all. I mean, it's -- I appreciate a decreasing rate 12 of decrease is a good thing, but it's still a 13 decrease. 14 MS. TAYLOR: I can tell you on my own 15 perspective just at the bingo hall that I'm affiliated 16 with, I mean, we continue to see a decrease in our 17 attendance, too. 18 COMM. SCHENCK: Do you talk to some of 19 the people? 20 MS. TAYLOR: We do; we do. And whenever 21 I hear the players telling me that they've come back 22 from Louisiana or, you know, have been to Las Vegas, 23 it always is a little knife in the heart because, of 24 course, I wish they were staying at home to spend 25 their money and helping their charities that are right 0032 1 there in their cities, but unfortunately they continue 2 to go away to do their gambling. 3 We also -- with the increase in prices 4 of gas, we have -- some of our players have lost their 5 jobs, some of those car businesses that went out of 6 business. Some of those players were also at our 7 bingo hall and now looking for jobs at the bingo hall. 8 So the economy is also having an impact on bingo right 9 now. 10 COMM. SCHENCK: Yeah, but as you say, 11 this is the lowest rate of decrease in recent years. 12 The economy was better when it was decreasing more. 13 Do you think illegal gambling here at home is also 14 siphoning off the charitable bingo? 15 MS. TAYLOR: Oh, there's no doubt 16 illegal gambling is siphoning off money. 17 COMM. SCHENCK: Do you think there is a 18 rate of increase in illegal gambling? 19 MS. TAYLOR: I actually think there's a 20 decrease in the illegal gambling. I think that more 21 law enforcement have gone after more -- or maybe I 22 just see more of it on the news, but I think that 23 they've closed down more illegal gambling operations. 24 I believe the card games are very 25 detrimental to bingo. There's a lot of players now 0033 1 that I'm hearing that go to the different -- I'm not a 2 card player. So I can't tell you the games, but they 3 go to play cards, you know, and they'll come to first 4 session and they'll all have to leave. And we'll lose 5 a huge number of people that are going out to play 6 card games, you know, with the poker games and stuff 7 that they have different venues. 8 COMM. SCHENCK: Okay. Well, it is of 9 some concern. I mean, we keep seeing these declines 10 in play, and it seems not to be affecting revenue. I 11 guess it's because we're seeing more instant and pull 12 tabs, but there's only so much you can do to make up 13 that difference if the people don't come. 14 MS. TAYLOR: What we're doing is we're 15 continuing to look for more money from fewer people, 16 and that also might be contributing -- 17 COMM. SCHENCK: That's also a concern. 18 MS. TAYLOR: -- to the decrease in 19 attendance in that if they spend more money when they 20 come, they can come fewer days. 21 COMM. SCHENCK: Yeah. Well -- and 22 again, at some point you don't want -- at least I 23 don't want that concentration. It seems to me it 24 would be better. We don't have any advertising right 25 now. Right? 0034 1 MS. TAYLOR: Only individual 2 organizations. 3 COMM. SCHENCK: Okay. But there's no 4 organized -- 5 MS. TAYLOR: Unfortunately no. 6 COMM. SCHENCK: No. And I think in the 7 next legislative session it would be nice if we could 8 see if we could do something as a separate item to 9 promote charitable bingo. 10 MR. SANDERSON: The agency has statutory 11 authority, but -- 12 COMM. SCHENCK: But we don't have any 13 money. 14 MR. SANDERSON: -- we don't have any 15 money. We keep requesting some money, and it doesn't 16 happen, but there are -- we do put out a public 17 service announcement that we've had some very good 18 feedback from different areas of the state that have 19 utilized the public service announcement on their TVs 20 and -- 21 COMM. SCHENCK: How does that work? 22 You're going through TV stations or radio and just 23 asking if they'll promote a charitable organization of 24 some kind? 25 MR. SANDERSON: Well, we provide the -- 0035 1 there's a link on our Website that has the actual 2 public service announcement. There was a BAC Member, 3 Rosie Lopez, former BAC Member, that took it to the 4 radio stations and TV stations in the Midland-Odessa 5 area, and she solicited them to play it on their 6 nightly newscast or late night TV shows. 7 And then current BAC Member, Francis 8 Ciancarelli, has distributed around in the different 9 media outlets in the Valley, and he's also I think 10 sent it out to other Rotary Clubs. He's a member of 11 the Rotary Club, and he sent it out to other Rotary 12 Clubs form them to try to get TV to start, you know, 13 running the ads on their TV spots. 14 COMM. SCHENCK: Is there anything your 15 staff can do to help facilitate that? 16 MR. SANDERSON: We can look at it. I 17 know -- like I said, we've got it on the Website, and 18 I know the Media Department, Mr. Heith, has stated -- 19 every once in a while they'll send it out along with 20 the link when they upload the numbers, I believe. I 21 don't understand the satellite jargon, but sometimes 22 they will send that out also or notice that it's on 23 the Website. 24 COMM. SCHENCK: Well, it might be -- I 25 think it's worth considering to look at this, Phil, if 0036 1 we can, and maybe with Bobby and even Tracy Locke to 2 see if there isn't some additional free air time, as I 3 expect that there is given the economic downturn, and 4 I think it's affecting paid advertising. So if 5 there's space to be given away, why not give it away 6 to charitable bingo? 7 MR. SANDERSON: I'll get with Bobby, 8 yes. 9 COMM. SCHENCK: Thank you. 10 CHAIRMAN WILLIAMSON: Questions, 11 Commissioner? 12 COMM. KRAUSE: No, ma'am. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you, Suzanne. 15 MS. TAYLOR: Thank you. 16 AGENDA ITEM NO. V 17 CHAIRMAN WILLIAMSON: Let's see. The 18 next item is the Charitable Bingo annual report. Phil 19 Sanderson, I believe that's yours. 20 MR. SANDERSON: This is an agenda item 21 that was discussed at the last meeting. The 22 Charitable Bingo Division publishes an annual report 23 each year, and the Commission is to adopt this report. 24 You've received a copy in the past, had a chance to 25 review. I've not received any additional comments 0037 1 other than "no comment" from each Commissioner. And 2 the only change to the draft report that you reviewed 3 last month is we finally have -- we've added the 4 biography of Commissioner Krause, and that's the only 5 other change. 6 So I would recommend adoption of the 7 report. If that's the case, then we'll have it 8 published on the Website as soon as possible. 9 CHAIRMAN WILLIAMSON: Commissioners, do 10 either of you have a question or comment? 11 COMM. SCHENCK: Nothing from me. 12 CHAIRMAN WILLIAMSON: All right. So 13 would someone like to make the motion to adopt? 14 COMM. SCHENCK: I move that we adopt the 15 recommendation. 16 COMM. KRAUSE: And I second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMM. SCHENCK: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 COMM. KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Motion passes. 22 Thank you, gentlemen. 23 MR. SANDERSON: Thank you. 24 AGENDA ITEM NO. VI 25 CHAIRMAN WILLIAMSON: Let's see. Our 0038 1 next item is a possible discussion, report and action 2 on the Bingo Advisory Committee, and I believe this is 3 an item that we kept from last Commission meeting. I 4 believe this is -- this is when we had talked about 5 the appointments to the committee and those sorts of 6 things. I know you had concerns, and we had all. 7 COMM. SCHENCK: If I'm remembering 8 right, Phil, is this my concern about updates about 9 the membership and developments that might affect -- 10 MR. SANDERSON: Yes, sir. This is -- 11 you briefly discussed it with Suzanne Taylor just a 12 moment ago. This agenda item is placed on the agenda 13 in March and in May to allow the deliberation of the 14 Commissioners to discuss what activities or functions 15 BAC members are involved with or involved in or have 16 been involved with that would need to be brought to 17 the attention of the Commission due to the fact that 18 the members serve at the will and pleasure of the 19 Commission. And other than, you know, 20 disqualifications based on convictions of certain 21 activities, are there any other activities that would 22 cause concern to the Commissioners to have a member 23 serving on the BAC? And that's the discussion that 24 you recently just had with Ms. Taylor that will be on 25 the agenda item for their August 5th meeting, I 0039 1 believe it is. 2 COMM. SCHENCK: I'm going to make a 3 suggestion, Kim, that you consider it in parallel to 4 the development of the recommendation coming out the 5 BAC, some kind of a rule that we could adopt if we -- 6 if we even need a rule. I'm not even sure that we do. 7 But I'd like this issue -- I think maybe 8 what we should do, Madam Chairman, is wait for the 9 recommendation coming out of the BAC on the 5th, but I 10 would like the issue noticed up for discussion for the 11 next Commission so that we can act promptly. 12 MS. KIPLIN: We'll do; I will carry it 13 forward. 14 CHAIRMAN WILLIAMSON: Suzanne, could 15 you -- I just want to ask just some general questions 16 about the BAC committee as much -- just for 17 edification for myself and Commissioner Krause since 18 only one of us can come and watch the meeting. I know 19 you guys have set up workgroups. Can you kind of give 20 us briefly what the workgroups are, their status, what 21 they do, that sort of thing? 22 MS. TAYLOR: I know that Phil over there 23 probably has a list of every workgroup that we have, 24 but what we do so that we're not in violation of 25 having a full committee together also, we set up the 0040 1 workgroup so that members of the BAC can get together 2 and have more deliberation and better discussions. We 3 also invite members of the public to come to that 4 workgroup. Some of them are put onto the workgroup 5 and others are welcome to come. And we have all sorts 6 of workgroups. We have a workgroup -- do you have 7 that list handy, Phil? 8 MR. SANDERSON: There are current 9 workgroups that -- well, one workgroup is the 10 nominations. There's, I believe, three members on 11 that that will review the nominations to make a 12 recommendation to the Commission on who they would 13 recommend to be appointed to the committee. 14 MS. TAYLOR: Excuse me. Actually they 15 make a recommendation to the entire committee, and 16 then the recommendation -- 17 MR. SANDERSON: Yes, that is correct. 18 MS. TAYLOR: -- comes from the committee 19 to the Commission. 20 MR. SANDERSON: There's another 21 workgroup on the market conduct. There was some 22 discussion about market conduct in the industry, and 23 they created a workgroup to discuss items that, from 24 my understanding, would be like from pricing -- fair 25 pricing and other -- how to conduct the activities in 0041 1 the industry. 2 There's two workgroups that have been 3 established to review licensing rules as they're being 4 developed for input prior to going to the Bingo 5 Advisory Committee. And then there's another 6 workgroup that reviews any rule that relates to the 7 books and records activity of maintaining records for 8 the bingo occasions. And those are the current 9 workgroups on the -- assigned by the BAC at this 10 point. 11 CHAIRMAN WILLIAMSON: How does their 12 work -- or what comes out of the committee? How is 13 that reported? Do we have reports from these 14 committees? 15 MS. TAYLOR: Let me -- let me give you 16 an example. The market conduct workgroup came to the 17 committee at the last -- at the last BAC meeting, and 18 what they -- they explained to us what they had 19 discussed. And what they had discussed were items 20 such as computer pricing, predatory pricing, 21 third-party subsidies, third-party guarantees, charity 22 rotation and code of conduct, but they weren't ready 23 at that time to make a recommendation to the entire 24 BAC as to what -- how they thought this could be fixed 25 or what should be done. 0042 1 But each workgroup brings back to the 2 committee the items that they've worked on through 3 their workgroup and makes a recommendation to the 4 committee. It helps make the meetings a lot shorter 5 because we're not discussing all of these individual 6 items and racking through them during the actual BAC 7 meetings. We're hearing then, you know, the best 8 of -- the cream of what comes off -- out of the 9 meetings to help try and make some decisions. 10 After that then we bring -- whatever the 11 whole committee decides on, then we bring that 12 recommendation to the Commissioners. 13 CHAIRMAN WILLIAMSON: Do you have any 14 questions? 15 COMM. KRAUSE: No, ma'am. 16 COMM. SCHENCK: No, ma'am. Thank you. 17 CHAIRMAN WILLIAMSON: Thank you, 18 Suzanne. 19 MS. TAYLOR: Sure. 20 AGENDA ITEM NO. VII 21 CHAIRMAN WILLIAMSON: Let's see. I 22 think, Phil, the next item is yours as well, the 2009 23 first quarter conductor information. 24 MR. SANDERSON: Yes, Commissioners, 25 we've put together the information reported by 0043 1 organizations for the first quarter of 2009, comparing 2 that to the previous first quarters of 2006, '7 3 and '8. And Mr. Miner is here to operate the 4 PowerPoint and give you-all the information. 5 MR. MINER: Good morning, Commissioners, 6 Chairman Williamson. For the record, my name is 7 Bruce Miner, and I'm the manager of the Taxpayer 8 Services Department of the Charitable Bingo Division. 9 I'm here to present to you the first quarter 2009 10 information reported for our licensed charities, and 11 these are the nonprofits that we license to conduct 12 bingo to raise funds for their charitable purposes. 13 Gross receipts for the first quarter of 14 2009 are approximately 5.6 percent greater than the 15 first quarter of 2008 and 6.9 percent greater than the 16 first quarter of 2006. Instant bingo sales increased 17 from $69.1 million in the first quarter of '06 to 18 $89.3 million in the first quarter of '09. Regular 19 card sales decreased from $66.5 million in the first 20 quarter of '06 to $56.4 million in the first quarter 21 of 2009. And as you can see, there was minimal change 22 for electronic sales during this same four-year 23 period. 24 This slide shows prize payouts 25 percentage for regular bingo for the first quarter of 0044 1 2009 as 73.3 percent of gross receipts. The prize 2 payout percentages for instant bingo were at 3 72.3 percent of gross receipts. 4 This chart shows that instant bingo 5 sales continue to exceed regular bingo card sales. In 6 the first quarter of 2009, instant bingo sales 7 represented almost 48 percent of the total sales while 8 regular card sales represented 30 percent and 9 electronics was at 22.4 percent. 10 This slide captures the trend of net 11 receipts, which are gross receipts minus the prizes. 12 Net receipts for the quarter first of 2009 increased 13 8.8 percent over the first quarter of 2008 and showed 14 an increase of 6.4 percent over the same quarter of 15 2006. 16 This bar chart compares each of the 17 major categories of expenses and shows the amount of 18 the disbursements for each year since 2006. The 19 highest disbursements continue to be salaries and rent 20 payments. 21 This next slide shows the average 22 attendance per occasion as compared to the average 23 spend per player. This shows that the average 24 attendance has gradually increased since 2007, but is 25 still down from 2006, and there has been a 0045 1 21.4 percent increase in the average spend rate per 2 player since 2006. 3 This chart shows the comparison of net 4 revenue and charitable distributions. Net revenue for 5 the first quarter of 2009 is also 21.4 percent greater 6 than the first quarter of 2008 and 15.2 percent higher 7 than the first quarter of 2006 while reported 8 charitable distribution has increased 7.2 percent 9 since 2006. 10 And finally this slide illustrates the 11 comparison between the reported charitable 12 distribution as opposed to the minimum amount required 13 to be distributed by the Bingo Enabling Act. Reported 14 charitable distributions increased 12.6 percent for 15 the first quarter of '09 over the first quarter of '08 16 and increased 7.3 percent since the first quarter of 17 2006. And you will note again that the actual 18 reported charitable distributions have been more than 19 three times the amount of the required distributions 20 amount. 21 This concludes my report for this agenda 22 item. I'll be glad to try to answer any questions you 23 might have. 24 CHAIRMAN WILLIAMSON: Thank you. 25 Commissioners, do you have any questions? 0046 1 COMM. SCHENCK: I have a quick question, 2 Bruce. 3 MR. MINER: Yes, sir. 4 COMM. SCHENCK: Do you know why, for 5 instance, your Slide No. 8, I believe, shows a 6 disproportionate increase in net revenues as compared 7 to charitable distribution? It seems to me there must 8 be a cost increase or just a decrease in the rate of 9 distribution beyond the required minimum distribution. 10 Which of the two do you think it would be? 11 MR. MINER: Phil, is that related to the 12 charitable distribution from the quarter prior? 13 MR. SANDERSON: The net revenue is what 14 they -- the profit they made during that quarter. The 15 charitable distribution that they make is based off of 16 the previous quarter's sales information. They're 17 required to meet that 35 percent. So normally -- 18 COMM. SCHENCK: So that's -- one is a 19 lagging indicator, the other is not? 20 MR. SANDERSON: Yes, we should see 21 higher distributions in the -- 22 COMM. SCHENCK: In the next quarter? 23 MR. SANDERSON: -- second quarter, yes, 24 sir. 25 MR. MINER: Yes, sir, I did see those, 0047 1 and these reflected two point something, and the next 2 quarter is three point something. 3 COMM. SCHENCK: Okay. I think maybe 4 when we do the chart next time it would be helpful to 5 make sure that the reporting periods are matching up. 6 In other words, if there's a one-quarter lag in the 7 distributions comparing it to the revenue in the same 8 quarter is not necessarily as meaningful as matching 9 them up. 10 MR. SANDERSON: So show the net revenue 11 for, like in this case, the first quarter against the 12 distributions they made in the second quarter? 13 COMM. SCHENCK: Right, if they're making 14 distributions based on revenues from the first 15 quarter. 16 MR. SANDERSON: Yes, sir. 17 COMM. SCHENCK: Yeah. 18 CHAIRMAN WILLIAMSON: Great. All right. 19 Thank you. 20 AGENDA ITEM NO. VIII 21 CHAIRMAN WILLIAMSON: The next item, 22 Phil, I believe this is yours. 23 MR. SANDERSON: Commissioners, in your 24 notebook is the activity reports for the months of 25 May 2009 and June 2009 for the Bingo Operations 0048 1 Division. As mentioned, the one thing I'd like to 2 point out is that the BAC meeting is scheduled for 3 August the 5th, and I'll be in touch or contacting you 4 to determine who would like to be present and at what 5 times or how you would like to be present, either 6 video or in person, unless you have a preference at 7 this point in time. 8 COMM. SCHENCK: I think I've attended 9 the last couple, and it might be helpful -- either one 10 of you might, I think, benefit from -- 11 COMM. KRAUSE: Where do they meet? 12 MR. SANDERSON: They meet here at ten 13 o'clock on a Wednesday morning. 14 CHAIRMAN WILLIAMSON: Just get in touch 15 with either Commissioner Krause or I. 16 MR. SANDERSON: Okay. We'll do. Thank 17 you. 18 CHAIRMAN WILLIAMSON: Thank you. 19 AGENDA ITEM NO. IX 20 CHAIRMAN WILLIAMSON: The next item is 21 report of lottery sales, game performance, 22 advertising, marketing, Mr. Tirloni and Ms. Pyka. 23 MS. PYKA: Good morning, Commissioners. 24 My name is Kathy Pyka, Controller for the Commission. 25 And with me to my right this morning is Robert 0049 1 Tirloni, our products manager. 2 Our first chart that we have for you 3 this morning reflects revenue from sales, a net 4 revenue to the state through the week ending July 4, 5 2009. Total sales through this 44-week period 6 amounted to $3.12 billion, a decline of three-tenths 7 of a percent compared to the same period in fiscal 8 year 2008. Prize expense is $2 billion, a decline of 9 seven-tenths a percent for a sales contribution of 10 $1.1 billion for the fiscal year. 11 Our estimated net revenue to the state 12 is $794 million reflecting a seven-tenths of a percent 13 increase as compared to the same period in fiscal year 14 2008. And the $2 billion amount that's recorded as 15 prize expense as a percentage of sales is 63.3 percent 16 for this fiscal year as compared to 63.6 percent for 17 the same period in 2008. 18 Our next slide for you summarizes the 19 change in sales from -- by game from fiscal year 2008 20 to fiscal year 2009. The total decline for fiscal 21 year -- from 2008 is three-tenths of a percent again 22 or $8.7 million, and the overall decline reflects a 23 $5.4 million or seven-tenths of a percent increase in 24 on-line games and a $14.2 million decline or 25 six-tenths of a percent in our instant ticket sales. 0050 1 The jackpot games portrayed in the white 2 font reflect a $9.9 million year-over-year increase 3 with the Mega Millions, Megaplier and Texas Two Step 4 games, all reflecting gains over the prior fiscal 5 year. And our Mega Millions game with $163.2 million 6 in sales is our top sales game for fiscal year 2009. 7 The daily games are presented with the 8 green font and reflect an overall decline of 9 $4.4 million as compared to fiscal year 2008 sales. 10 And again, our instant sales declined six-tenths of a 11 percent through July 4th. 12 Commissioners, I'd like to note this 13 decline, when we met with you last time, was 14 2.1 percent or $42 million. And our new $500 Million 15 Blockbuster game, since it's been introduced, has 16 generated $62.6 million in its first seven weeks of 17 introduction, which is definitely seen in this huge 18 reduction in the -- or the instant sales decline. 19 So our next slide that we have for you 20 reflects the historical Foundation School Fund revenue 21 trends from the beginning of the fiscal year to date. 22 We started our fiscal year with a decline of 23 11.36 percent in comparing the transfers to the 24 Foundation School Fund in 2009 to 2008. And, of 25 course, this was following the sales loss that we had 0051 1 with Hurricane Ike at the beginning of the fiscal 2 year. Our year-to-date transfers now reflect a 3 .59 percent increase in comparing overall transfers to 4 the Foundation School Fund where we are in fiscal 5 year 2008. 6 And with that, Robert will now discuss 7 sales by price point or by product category. 8 MR. TIRLONI: Good morning, 9 Commissioners. For the record, my name is 10 Robert Tirloni. I am the Products Manager for 11 the Commission. 12 This next slide shows the $3.1 billion 13 in total sales realized through the week ending 14 July 4th. No change here in terms of the breakout by 15 product category. Instants are representing 16 76 percent with on-line making up the other 17 24 percent, and that's a trend we've seen for quite 18 some time. 19 Commissioners, this next slide shows the 20 $756 million in on-line game sales through the week 21 ending July 4th. Pick 3 continues to be our best 22 selling on-line game, followed by Mega Millions and 23 then Lotto Texas. Lotto Texas and Mega Millions are 24 pretty close. There's about $2 million difference in 25 total sales between those games. 0052 1 We were on a pretty good Mega Millions 2 roll until last night. There was a jackpot ticket 3 sold in New York. So we're back at the starting 4 jackpot amount of $12 million for Mega Millions for 5 Friday. 6 COMM. SCHENCK: Those numbers from the 7 last roll, though, are not yet reflected here. So 8 presumably this -- 9 MR. TIRLONI: Last Friday's were in -- 10 are in these numbers. The sales for last night's 11 drawing are not. 12 COMM. SCHENCK: Where is Lotto Texas 13 right now? 14 MR. TIRLONI: $21 million for tonight. 15 And again, this is a similar chart or 16 piechart to the one you just saw, but this represents 17 our instant sales of $2.4 billion through July 4th. 18 Again, not very -- not many changes from last month. 19 The $5 continues to be our best selling prize point 20 followed by the $2, the $10 and then the $3. As Kathy 21 noted, we are seeing great sales coming in from our 22 20-dollar $500 Million Blockbuster game. 23 COMM. SCHENCK: Expressed as a 24 percentage, are the $20 and the $50 coming up? 25 MR. TIRLONI: I'd have to go back and 0053 1 look. I believe the $20 has increased because of the 2 great success we've had with the Spotlight game. 3 MS. PYKA: Commissioner, to put it in 4 perspective, of the 240.5 million up there for the $20 5 prize point, the new Blockbuster game represents 26 of 6 that total, which was sold in the last seven weeks. 7 COMM. SCHENCK: The reason I ask is 8 I'm just -- I don't know if you'll recall, but 9 Jaymin Patel was here from GTECH reminding us that 10 the last two recessions -- or the beginning of the 11 recessions the lottery sales worldwide were down. And 12 shortly before the recoveries, lottery sales were up. 13 And if people are buying the $20 and the $50, it may 14 be a sign of consumer confidence. I'm hoping that I'm 15 right. 16 MR. TIRLONI: Commissioners, I have a 17 brief product update for you. When we last met in 18 May, Deputy Executive Director Gary Grief talked to 19 you about the conversations we were having with both 20 the Houston Texans and the Dallas Cowboys. Those 21 conversations continued into June when we successfully 22 executed contracts with both teams to run scratch-off 23 games. 24 The artwork, this is final artwork 25 approved by both teams. The games working papers have 0054 1 been approved. Both of these games are slated to 2 launch on Monday, August 17th, just in time for the 3 NFL season. 4 Staff is very excited about both of 5 these game. These games are unique because they offer 6 not only cash prizes, but they offer experiential 7 prizes that would be typically pretty hard to come by, 8 branded, signed jerseys, experiential trips, weekend 9 packages, suite packages. So we're very excited about 10 these games kicking off here in the next month, and 11 we're looking forward to very successful launches and 12 very successful sales from both of these games. 13 MR. GRIEF: Commissioners, if I could, I 14 believe Robert left each one of you one of these 15 brochures in front of you on the Cowboys second chance 16 drawing prizes. And like Robert said, we are thrilled 17 to death with this. You know, Texas is a football 18 state, and we think both these games are going to be 19 very successful for us. 20 MR. TIRLONI: And we're printing similar 21 brochures for the Texans. They just didn't come in in 22 time for me to give you a sample today. 23 CHAIRMAN WILLIAMSON: Commissioners, do 24 you have any questions or comments? 25 COMM. SCHENCK: No. 0055 1 MS. PYKA: Thank you, Commissioners. 2 AGENDA ITEM NO. X 3 CHAIRMAN WILLIAMSON: The next item, 4 Ms. Pyka, I believe is yours on the transfers. 5 MS. PYKA: Yes. Again, for the record, 6 my name is Kathy Pyka, Controller for the Commission. 7 Tab 11 includes information on the 8 agency's transfers to the state, and the first report 9 in your notebook reflects the transfers and 10 allocations to the Foundation School Fund and the 11 allocation of unclaimed prizes for the period ending 12 May 31, 2009. Total cash transfers to the state 13 amounted to $744.8 million for the first nine months 14 of the fiscal year. 15 The second page of your notebook 16 reflects the detailed information for the monthly 17 transfers. Of this $744.8 million transfer to the 18 state, $701.7 million was the amount transferred 19 to the Foundation School Fund with a balance of 20 $43.1 million transferred from unclaimed lottery 21 prizes. And again, this represents four-tenths of a 22 percent increase or $2.1 million and an increase over 23 the total amount transferred in fiscal year 2008. 24 And I wanted to give you-all an update. 25 We did finish the June transfer and released that 0056 1 yesterday. And with the June transfer, our cumulative 2 transfers are now up $4.7 million or .59 percent over 3 fiscal year 2008. So we're very excited about that 4 increase. 5 And this concludes my presentation. I'd 6 be happy to answer any questions you might have. 7 CHAIRMAN WILLIAMSON: Commissioners, any 8 questions? 9 COMM. KRAUSE: Looks like we're doing a 10 good job. 11 COMM. SCHENCK: I have a quick question. 12 I think in fairness this probably relates to the last 13 item, but I have an observation. It seems to me -- 14 I'm looking at the weekly sales from July 8. We had a 15 27 percent -- 27.6 percent increase for the Mega 16 Millions game, meaning that over the same period the 17 week before. 18 MS. PYKA: The week before, uh-huh. 19 COMM. SCHENCK: And yet it's interesting 20 to me -- I can remember Chairman Cox asking this 21 question quite often. It's sort of a black art 22 determining which game -- what the effects are in 23 terms of potentially cannibalizing one game, instants 24 versus on-line and on-line versus instants, but I 25 notice this increases across the board. So if people 0057 1 were coming out to buy the Mega Millions game, they 2 weren't just buying the Mega Millions game. They 3 bought instants 3.9 percent more often than they did 4 the year prior. Lotto Texas, which you would think if 5 they're going to buy an on-line game, they're going to 6 make a decision one or the other, but apparently 7 that's not true. 8 MS. PYKA: Well, I think what we're 9 seeing here with this week-over-week comparison, we're 10 looking at June 27th compared to July the 4th. And so 11 as we reach the early part of the month, our sales are 12 generally up -- 13 COMM. SCHENCK: Okay. 14 MS. PYKA: -- for that first part of the 15 month. And again, with all of our jackpots rolling -- 16 and we've had tremendous increases that we've seen in 17 instants -- we've had eight weeks of increase in 18 instant ticket sales. So I think that's just 19 essentially what we're seeing there. 20 COMM. SCHENCK: Interesting. 21 MR. TIRLONI: I think we also had the 22 benefit of a holiday weekend with a weekend that 23 typically sees people going outdoors, going into 24 convenience stores, going into grocery stores. The 25 fact that we had all three of our jackpots at pretty 0058 1 attractive levels, because even Two Step last week was 2 probably in the $375,000 range towards the end of last 3 week. So I think we had the benefit of all the 4 jackpot games being at attractive levels and a new or 5 fairly new instant game that's getting a lot of 6 attention and the fact that you are -- the holiday was 7 causing people to go into the venues where our product 8 is sold, all those pieces kind of fell into place at 9 just the right time and helped contribute to a 10 successful week, not only for one product, but across 11 the board. 12 COMM. SCHENCK: Well, I agree. It looks 13 like you're doing a very good job, and these transfers 14 are seeming to show it. 15 MR. TIRLONI: Thank you. 16 MS. PYKA: Thank you, Commissioners. 17 CHAIRMAN WILLIAMSON: Thank you. 18 AGENDA ITEM NO. XI 19 CHAIRMAN WILLIAMSON: Let's see. The 20 next item, Ms. Pyka, is yours as well, the contract 21 amendment. 22 MS. PYKA: Yes. Again, for the record, 23 Kathy Pyka, Controller for the Commission. 24 Commissioners, this morning I wanted to 25 provide you an update on Amendment No. 8 of the 0059 1 Lottery Operations and Services contract and the 2 amount due to the Commission for the third quarter of 3 fiscal year 2009. While there was an increase in 4 quarter sales and revenue transfers comparing fiscal 5 year 2009 to 2008, there is not a credit due to the 6 Commission as a result of those increased transfers 7 and sales. 8 I'll be happy to answer any questions 9 that you might have. 10 CHAIRMAN WILLIAMSON: Any questions? 11 COMM. SCHENCK: None. 12 MS. PYKA: Thank you. 13 CHAIRMAN WILLIAMSON: Thank you. And at 14 this time, we'll take a ten-minute short break and 15 come back before we start with the next item on our 16 consumer protection practices. 17 (Recess: 10:15 a.m. to 10:25 a.m.) 18 AGENDA ITEM NO. XII 19 CHAIRMAN WILLIAMSON: All right. The 20 meeting is back in order, and it is 10:25. 21 Michael Anger will now present our -- 22 show us our consumer protection best practices. 23 COMM. SCHENCK: Michael, should we dim 24 the lights for you? 25 MR. ANGER: I think we can do it with it 0060 1 fully lit, but either way. 2 Good morning, Madam Chair, 3 Commissioners. For the record, my name is 4 Michael Anger, and I'm the Lottery Operations 5 Director. 6 In light of some recent media attention 7 and public comment before the Commission related to 8 retailers and their process of paying player prize 9 claims, Deputy Executive Director Grief thought that 10 it would be helpful for me to come to you and report 11 to you on some information with regard to efforts that 12 we've made in past years to enhance our consumer 13 protection best practices. 14 I've made previous presentations on this 15 topic to the Commission, but I don't believe that I've 16 presented any of this information since any of you 17 have joined the board. So we thought it would be 18 helpful to share the efforts that we've put in place 19 and some of the things that we do to protect our 20 consumers. 21 As you know, integrity and 22 responsibility are core values of the agency. This 23 begins with ensuring the public's trust and confidence 24 in the fairness of our games. Since the inception of 25 the lottery in Texas, substantial efforts have gone 0061 1 into security related to our ticket designs, the 2 conduct of our drawings and controls over validation 3 and payment processes. 4 In recent years, the agency has 5 implemented significant additional controls and 6 protections related to what Lottery Operations refers 7 to as our consumer protection best practices. We've 8 used the phrase "consumer protection" because we think 9 it captures our intent, which is to set apart our 10 processes intended to protect our players in lottery 11 transactions. We do not intend for this phrase to 12 take on a legal meaning, which I defer to our general 13 counsel on. 14 Our efforts in this area focused on 15 expanding existing programs and initiatives to protect 16 and ensure the continued security of our lottery games 17 and systems with the goal of providing additional 18 protection for lottery players related to prizes. Our 19 efforts in this area are categorized primarily into 20 three areas: Technical and security enhancements to 21 products and services, consumer awareness initiatives 22 and complaints and security monitoring. 23 The first group of technical efforts 24 were related to product enhancements. The security 25 number is required for retailers to complete the 0062 1 validation of a scratch-off ticket, and it's depicted 2 here and then also here on this ticket image here. 3 The four-digit security number resides under the 4 laytex covered play area of the ticket and was changed 5 from all four numbers existing inside one box located 6 within the serial number on the front of the ticket to 7 now boxing the digits separately and floating them 8 throughout the serial number. And essentially here is 9 the four-digit boxed structure that we used to have in 10 place, and we've since separated the four digits that 11 a retailer must key in manually into the on-line 12 terminal system to validate a ticket, and those are 13 floated randomly across the serial number of the 14 ticket. And the reason for this is to minimize the 15 opportunity for pinpricking or microscratching where a 16 small amount of security coating or latex is removed 17 to uncover portions of the numbers, thus allowing a 18 person to fish for winning tickets. 19 Another change that we made at the time 20 were changes to remove validation codes which 21 originally were a part of the industry prior to the 22 ability for instant tickets to be validated on on-line 23 terminals. Retailers and sometimes players use these 24 validation codes to identify winners for payments. To 25 reduce the possibility of player confusion and 0063 1 misinterpretation of the symbols, the validation codes 2 have since been removed from our instant tickets. 3 Finally, to enable consumers to use 4 player-activated terminals, we introduced PDF 417 bar 5 codes to the front area of our tickets underneath the 6 latex. These were added underneath the security 7 coding and essentially allow the player to take a 8 ticket to a player-activated terminal, scan their own 9 ticket, check the ticket to determine whether it's a 10 winning or nonwinning ticket and also the amount of 11 their winning prize. If they determine that the 12 ticket is a winner, they can provide that ticket then 13 to a retailer or a claim center to claim their prize. 14 The second group of technical efforts 15 were related to equipment enhancements directly 16 involving player protection initiatives at retail 17 locations. This required the addition of the PDF 417 18 bar code that I referenced previously. And those bar 19 codes are used in conjunction with the Check-A-Ticket 20 units that you see depicted here. 21 In June of 2008, the agency began the 22 deployment of over 10,000 Check-A-Ticket terminals at 23 retail locations around the state. These 24 player-activated terminals provided consumers with the 25 ability to check the winning status of their on-line 0064 1 tickets as well as their instant tickets prior to 2 validation by the retailer. The terminals provide 3 both the visual display and an audible beep confirming 4 winning tickets. 5 We also introduced dual validation 6 receipts to provide players with printed confirmation 7 of the validation transaction at the terminal while 8 allowing retailers to continue to keep a copy of the 9 receipt for the transaction for their records. So 10 essentially when a validation takes place, we have a 11 player copy and a retailer copy there available for 12 the player to receive so that they can feel 13 comfortable that the transaction occurred for the 14 proper amount and they received proper payment for 15 their prize. 16 Additionally on our ISYS terminals, 17 which is depicted here, this is the primary terminal 18 deployed at retail locations around the state. We 19 enabled a series of audible tones to assist players in 20 identifying the status of tickets scanned by the 21 retailer, the tone sound after every inquiry or 22 validation attempt at the retail location. The four 23 distinct tones also are identified on our Website to 24 provide consumers with the opportunity to understand 25 and be familiar with the sounds and tones they should 0065 1 expect to hear when a ticket is submitted for 2 validation. And by way of example, for prizes under 3 $600, the sound that plays is "You're In The Money." 4 The unit depicted here is a Vacuum 5 Fluorescent Display unit. When the ISYS terminal is 6 deployed in the retail location at a presence point at 7 retail at the counter where it faces out toward the 8 clerks -- or out toward the players into the consumer 9 area of the business, they're equipped with a Vacuum 10 Fluorescent Display unit, which displays both the 11 transaction outcome, whether it was a winner or not, 12 and also the amount of the transaction. We also 13 enhanced this by expanding the amount of time that 14 this stays displayed on the unit for a period of ten 15 seconds. 16 The second area of emphasis is related 17 to consumer awareness initiatives. To aid with 18 consumer awareness, the Lottery Operations Security 19 Department team developed and launched a Security 20 Spotlight page on the Lottery's Website. The 21 Spotlight area features information on scams and other 22 consumer protection issues for which staff can provide 23 helpful information. The topics on the site include 24 what steps can I take as a player to safeguard my 25 tickets, what steps can I take as a lottery retailer 0066 1 to safeguard tickets, and things to look for that may 2 indicate a lottery scam and information about common 3 scams. 4 And then finally on the page we also 5 provide information for resources outside of the 6 lottery that consumers may want to reach out to with 7 regard to scams or issues that arise with regard to 8 lottery products. An example would be e-mail schemes 9 that exist out there. We sometimes have people 10 contact us in our Customer Service area indicating 11 they received an e-mail that said that they won the 12 Australian Lottery or something like that and wanted 13 to determine whether that was a legitimate inquiry. 14 Typically they're not. And we've provided resources 15 and made those available to contact the Attorney 16 General's Office, the Federal Trade Commission and 17 other authorities that assist consumers with those 18 types of matters. 19 The agency has also attempted to enhance 20 our awareness of certain lottery scams via news 21 releases from our Media Relations Department. 22 Encouraging players to sign tickets 23 presented for prize payment at retail locations can 24 also help reduce uncertainty about the prize claim 25 process. A renewed campaign to remind players to sign 0067 1 the back of their lottery tickets was implemented at 2 retail outlets. It includes lottery play station 3 decals, terminal toppers in the stores as well as 4 support on the agency's end-of-game notices that we 5 publish in the Frequently Asked Question Information 6 section of the Website. 7 And the final category of our efforts 8 deals with complaints and security monitoring 9 processes. The Lottery Operations Security Department 10 staff has worked with the Lottery Operator to develop 11 a variety of automated reports designed to identify 12 unusual lottery transaction patterns in the data that 13 we collect. For example, one report compares people 14 in the claimant database with those in our retailer 15 database to identify questionable patterns for further 16 review and possible investigation. 17 Formally established in 2004, the 18 Compliance Activity Monitoring Program hotline 19 provides a venue for consumers to notify the Texas 20 Lottery Commission of jurisdictional concerns. This 21 allows players or retailers to report suspicious 22 behavior directly to the lottery, CAMP staff monitors 23 complaints and violations of the Bingo Enabling Act, 24 State Lottery Act and our administrative rules. An 25 automated system provides the ability to track all the 0068 1 complaints and violations for initial intake and 2 identification all the way through final disposition. 3 Trending analysis and reporting are also tools that 4 are available via the CAMP system. 5 The program is publicized via the 6 agency's Website and signage in our retail locations 7 and also in bingo halls. Retailers and players who 8 believe there have been a prize payment violation are 9 encouraged to immediately contact the Texas Lottery so 10 the complaint can be recorded and investigated. 11 Complaints and any administrative action resulting 12 from a complaint are tracked for each of our retailers 13 in accordance with the agency's statutes and 14 administrative rules, proven cases of licensing 15 violations resulting in progressive disciplinary 16 action remedies up to and including revocation of 17 sales agent licenses and referral for criminal 18 prosecution, if appropriate. The penalties are 19 applied based on our standard penalty chart, which is 20 outlined in our retailer administrative rules and are 21 accessible to our retailers for review via our 22 website. 23 In addition, retailers receive 24 information on lottery policies with their initial 25 license application packet, during training classes 0069 1 that we provide to our retailers and through ongoing 2 communications via the Website and retailer meetings 3 and then lottery retailer publications. 4 Though these many initiatives and 5 concerted efforts of staff, we continue to identify 6 and implement evolving strategies for consumer 7 protection. The lottery has added and continues to 8 develop a significant level of security for players 9 and sales agents who sell our games. These consumer 10 protection efforts are focused on ensuring the 11 potential fraud situations are promptly evaluated and 12 addressed. 13 I want to make note that the retailers 14 are one of the greatest assets of the lottery and the 15 overwhelming majority of our licensees conduct their 16 lottery business in a manner that exemplifies 17 integrity and responsibility, which are the 18 cornerstones of our operations. We believe we have 19 established programs and efforts to protect consumers 20 effectively while not encroaching in an unreasonable 21 fashion on the private business owners that have 22 elected to license and offer lottery products in 23 support of Texas education and their businesses. 24 I would also like to note that I reached 25 out to Professor Gerald Busald prior to the meeting 0070 1 today to notify him that I would be making this 2 presentation. Professor Busald exchanged e-mail 3 communications with me on this topic and asked that I 4 share with you his issues and comments on this subject 5 matter. 6 I provided each of you with a copy of 7 our communications, and I'd like to request that this 8 information be added to the record related to this 9 item. 10 CHAIRMAN WILLIAMSON: Do we need to make 11 a motion for that or -- 12 MS. KIPLIN: No, I think it's enough 13 that we just request that -- 14 CHAIRMAN WILLIAMSON: Just include it? 15 MS. KIPLIN: -- the court reporter add 16 it to the transcript. 17 MR. ANGER: And that concludes my 18 presentation. I'd be happy to answer any questions 19 you might have. 20 COMM. SCHENCK: How often do we catch 21 people with these procedures? I can recall a couple 22 of cases where we -- I know we have facilities for 23 checking signatures, checking for pinpricks, things of 24 this nature, but it seems to me maybe once, twice a 25 year we have cases come up where we've actually caught 0071 1 somebody pinpricking or forging a signature, cheating 2 a player out of the winning. How often are we 3 catching people? 4 MR. ANGER: That's a -- it's a broad 5 question. Some of the items that you're referring to 6 like someone whiting out and signing over the top of 7 another claim where someone has originally signed it, 8 those matters typically get investigated and actually 9 don't come before the Commission for ultimate 10 resolution. So there's some of those that you 11 honestly probably haven't seen come in this forum. 12 With regard to retailers that engage in 13 pinpricking activity, you know, we haven't had a large 14 number of those. You know, we feel that that's, you 15 know, in part due to some of the efforts that we've 16 put in place and largely because the great majority of 17 retailers are conducting business the way they should. 18 We do have those cases, and we're very aggressive when 19 we receive reports from the public in following up on 20 those and trying to take, you know, immediate 21 appropriate action as far as those are concerned, but 22 they're relatively limited. 23 COMM. SCHENCK: How often do we refer 24 these matters for criminal prosecution, do you know? 25 MR. ANGER: I don't have hard numbers 0072 1 for you on that. When complaints come in through the 2 CAMP program and they involve these types of matters, 3 they're referred to our Enforcement Division for 4 investigation, and then basically the investigative 5 report takes potentially two paths. If it appears 6 that there was some violation of the State Lottery Act 7 and some criminal violation associated with it, the 8 Enforcement Division will refer that out to the D.A. 9 or the local Justice of the Peace for their evaluation 10 to possibly pursue criminal proceedings. 11 Separate from that, the investigative 12 report gets referred to Lottery Operations, and we're 13 the ones that actually review those cases with regard 14 to administrative action, anything from warning 15 letters, suspensions up to revocations. So we do get 16 some information back on that. I've talked with 17 Jim Carney and also Tom Hanson with regard to, you 18 know, prosecutions and those types of things. We 19 often hear back and get solid feedback when there's 20 going to be full-blown prosecution in those matters if 21 the D.A. decides to take it up because we're asked to 22 come and testify. Our investigators are asked to come 23 and testify in those matters. 24 If the local jurisdiction chooses not to 25 pursue the matter or doesn't call for us to testify, 0073 1 we don't always get an outcome on that. We don't 2 always know what the potential outcome is based on 3 their actions. 4 COMM. SCHENCK: Can you remind me, is 5 this, from a criminal perspective, just a general 6 theft issue, or is there a separate -- within the 7 Texas Lottery Act, is there is criminal prohibition? 8 And maybe you're the one to answer that, if you can 9 recall. 10 MS. KIPLIN: I think there's the general 11 theft, you stole from somebody else, but then if that 12 person is trying to claim, then that's a claim by 13 fraud, and that is a specific lottery statute. 14 COMM. SCHENCK: Is that a misdemeanor or 15 a felony? 16 MS. KIPLIN: No, those are felony 17 offenses and depending on the amount, it can be 18 enhanced up to a first degree felony. But more often 19 than not they're not just stealing the ticket, they're 20 actually going and claiming it, and so it goes into 21 the claim by fraud, you know, claiming a lottery prize 22 by fraud. 23 COMM. SCHENCK: Those are serious 24 matters when they come up, and it seems to me I think 25 we've had a couple of cases like that that I can 0074 1 recall where we've pushed hard for criminal 2 prosecution. Thank you. 3 MR. ANGER: Sure. 4 COMM. KRAUSE: No questions. 5 CHAIRMAN WILLIAMSON: Michael, kind of 6 give us an idea on the machines where you can check 7 your own tickets about how many do we have out there 8 and where might they be, in low-populated areas or 9 areas that may not have as many retailers, how we've 10 dealt with those situations as well. 11 MR. ANGER: That's a great question. We 12 have 10,250 of these units available to us that we 13 received as a result of negotiations under Amendment 8 14 of the Lottery Operator contract. In addition to 15 that, GTECH agreed to provide Check-A-Ticket units for 16 self-service on-line terminals that we have deployed 17 out in the field because they're not capable of 18 reading the PDF 417 bar code technology. 19 So in addition to the 10,250, we have 20 over 800 self-service terminals currently deployed out 21 in the field in sales organizations. We have deployed 22 as of the end of May about 9,900 of the Check-A-Ticket 23 units to retail locations around the state. And by 24 the end of this month, GTECH will have completed all 25 the installations of Check-A-Ticket units on the SST 0075 1 units. So that puts us at about 10,700 locations. 2 We also, in the Amendment 8 to the 3 contract, received 1,000 game point terminals, which 4 are a combined instant ticket vending machine and 5 self-service on-line terminal. Those units are also 6 capable of conducting ticket checking technology the 7 same way using PDF 417. We have a limited number of 8 those deployed as test units right now. We're going 9 to be deploying more of those out into the field. 10 But to answer your original question as 11 far as how we decided to deploy this equipment is we 12 used essentially three criteria: Our highest selling 13 location, so the ones that are doing the most frequent 14 sales volume, those that are doing the most frequent 15 cashing volume, sometimes those are the same and 16 surprisingly sometimes they're not. And then the 17 third category -- and we felt this was the most 18 important category that we implement -- was that we 19 wanted to make sure we had a good geographic presence. 20 So we also looked at the state beyond 21 those first two criteria, and if it's a small town 22 where we only have one or two retailers and neither 23 one of those criteria were met by that retailer as far 24 as sales or cashing activity, you know, we've looked 25 to deploy Check-A-Ticket units into those communities 0076 1 so that everywhere across the state where the lottery 2 has a retail licensee presence and we have our 3 products available for sale, there's some outlet where 4 a person could go to use the self-service 5 Checking-A-Ticket on their -- checking equipment on 6 their own. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you. Any other questions? 9 COMM. SCHENCK: No. 10 MR. ANGER: Thank you. 11 CHAIRMAN WILLIAMSON: Thank you very 12 much. 13 AGENDA ITEM NO. XIII 14 CHAIRMAN WILLIAMSON: Let's see. 15 Ms. Trevino, report of the 81st Legislature. 16 MS. TREVINO: Good morning, 17 Commissioners. For the record, I'm Nelda Trevino, the 18 Director of Governmental Affairs, and I have some 19 updates to provide to you today. 20 At the conclusion of the Regular 21 Legislative Session, agency staff began its work 22 with the implementation of enacted legislation. 23 Melissa Villasenor from the Governmental Affairs 24 Division serves as Project Coordinator, and Division 25 Directors are responsible for coordinating the actual 0077 1 implementation of bills assigned to their division. 2 In your notebook, we provided you with 3 several documents related to the agency's legislative 4 implementation project. Out of approximately 190 5 bills the agency tracked during the regular 6 legislative session, 21 bills were passed by the 7 Legislature and signed by the Governor. These 21 8 bills comprise the implementation project, and they 9 are noted on the implementation bill tracking report 10 included in your notebook. Bills were assigned to 11 Division Directors on the basis of subject matter and 12 Directors have formed committees for each of the bills 13 to determine what action by the agency, if any, is 14 needed to implement the bill. 15 There are four bills that were enacted 16 that I would like to highlight for you today. First, 17 House Bill 1474 by Representative Charlie Garon. This 18 bill generally includes provisions related to the 19 regulation and operation of bingo, including 20 provisions to streamline licensing and other 21 administrative processes. It also provides for 22 reforms on the accounting and reporting requirements 23 for licensees, increases the allowable number of 24 temporary licenses for organizations wanting to 25 conduct bingo from 12 to 24, requires organizations 0078 1 conducting bingo to submit business plans to the 2 agency, amends the charitable distribution formula and 3 deletes obsolete language. 4 Phil and his staff are reviewing the 5 provisions of the bill to determine what programming 6 changes will be needed, what procedures and forms will 7 need to be revised and what rulemaking will need to be 8 brought before the Commission in order to confirm with 9 the bill's provisions. A specific tracking schedule 10 has been developed by the Bingo Division in order to 11 monitor the implementation of this bill. 12 The next bill, House Bill 1963 by 13 Representative Edmund Kuempel, this is the bill that 14 repealed the provision in State Lottery Act that 15 correlates the Lottery Commission's advertising budget 16 with the percentage paid out in prizes. There's no 17 specific action required to implement this bill, and 18 it will be something that the agency continues to 19 monitor. 20 House Bill 2509 by Representative 21 Charlie Geren, this is the bill that clarified the 22 definitions of "adult" and "minor" in the State 23 Lottery Act and addresses the inconsistency that 24 currently exists between the definitions in the 25 property code and in the State Lottery Act. 0079 1 Appropriate procedures are being updated in order to 2 conform with the provisions of this bill. 3 The last bill I wanted to mention is 4 Senate Bill 1655 by Senator Leticia Van de Putte, and 5 this is the bill that included a provision requiring 6 the Lottery Commission to create and market a 7 scratch-off game to benefit the Veterans Assistance 8 Fund. The agency has been coordinating with the Texas 9 Veterans Commission and one of its advisory committees 10 along with Representative Chris Turner and Senator 11 Van de Putte regarding the development and promotion 12 of this game. It is anticipated the game launch will 13 be on November the 9th, which ties in with Veterans 14 Day, which is on November the 11th. 15 The legislative implementation project 16 report included in your notebook provides a status on 17 the actions taken to date to implement these bills. 18 As agency staff continues to work on this project, we 19 will provide you with any appropriate updates. 20 Additionally we included in your media 21 notebook four separate bill tracking reports that 22 provide the final status of bills that were of 23 specific interest to the agency during the Regular 24 Session. 25 And lastly the Legislature convened the 0080 1 first called Special Session on July the 1st, and 2 Senate Bill 2 relating to the Sunset Commission's 3 review schedule was enacted and includes a provision 4 changing the Lottery Commission's Sunset date from 5 2011 to 2013. This provision postpones the agency's 6 Sunset review for two years. 7 This concludes my report, and I'll be 8 glad to answer any questions that you might have. 9 CHAIRMAN WILLIAMSON: Commissioners, do 10 you have any questions? 11 COMM. SCHENCK: I don't. 12 COMM. KRAUSE: No, ma'am. 13 MS. TREVINO: Thank you. 14 CHAIRMAN WILLIAMSON: Thank you, Nelda. 15 AGENDA ITEM NO. XIV 16 CHAIRMAN WILLIAMSON: The next item was 17 a report on the Sunset process, and Nelda has already 18 covered that. So we can put that off for another two 19 years. 20 AGENDA ITEM NO. XV 21 CHAIRMAN WILLIAMSON: And I believe the 22 next item is Mr. Fernandez on advertising services 23 contract -- obviously not Mr. Ferndandez. 24 (Laughter) 25 MS. ERICKSON: Good morning, 0081 1 Commissioners. For the record, Toni Erickson, Support 2 Services Manager. This agenda item is to provide 3 notice to the Commission of the agency's intent to 4 amend the Advertising Services contract. The purpose 5 of the amendment is to clarify certain provisions for 6 intellectual property and for invoicing and payment 7 requirements. I'd be happy to have -- answer any 8 questions that you might have. 9 COMM. SCHENCK: I do not. 10 CHAIRMAN WILLIAMSON: Commissioners? 11 (No response) 12 MS. ERICKSON: Great. You made it easy 13 for me. 14 (Laughter) 15 AGENDA ITEM NO. XVI 16 CHAIRMAN WILLIAMSON: Okay. Let's see. 17 The next item, report on the agency's headquarters 18 lease. 19 MS. ERICKSON: Also mine. Again, for 20 the record, Toni Erickson, Support Services Manager. 21 As you may recall in the January Commission meeting, 22 we gave you an overview of our headquarters lease. 23 Today's agenda item is to provide an update on the 24 status of the lease renewals. 25 Our current lease here for this 0082 1 headquarters expires May 2010, next year, early next 2 year. The annual lease rate for this building is 3 currently $30.33 per square foot. It also includes 4 annual escalators for lease and a CPI increase. In 5 February we started leasing negotiations for the 6 renewal of the lease. 7 Current lease negotiations -- under 8 current lease negotiations, the lessor is offered a 9 ten-year lease term with a proposed rate of $29 per 10 square foot for the first five years and $30.90 for 11 the last five years. That creates an effective rate 12 of $29.95 for the ten-year lease. That would result 13 in an actual cost savings to the agency of $287,196. 14 I also want to note that that is 3.6 percent less than 15 the current market rate for Class B space in the 16 central business district, which is where this 17 building is located. 18 As part of the lease renewal, we also 19 negotiated no annual rate escalations obviously with 20 the two -- the two increases only, other than CPI, 21 they will get that. The lessor will also complete a 22 number of renovation and maintenance projects as part 23 of the lease negotiation, and that includes paint and 24 carpet in all of our common areas, includes a 25 rebalancing of our heating and air-conditioning 0083 1 system, a canopy that will be put over the south 2 entrance and some energy conservation initiatives. 3 Finally I wanted to update you on a 4 conversation that we had with the Texas Facilities 5 Commission as part of the lease negotiations. We 6 talked with Mike Lacy at the Texas Facilities 7 Commission. We discussed obviously availability of 8 state owned space, and there is none available for us, 9 but Mike mentioned that the Legislature was 10 considering the development of a state campus. I 11 don't think it passed this legislative session 12 obviously, but he recommended that in any amendment 13 that we do that we include an out clause or a 14 termination clause that would allow us to move to a 15 state campus in the event that one is approved and 16 constructed. 17 So also included in our amendment is a 18 provision that would allow us to terminate this lease 19 early if there is a state campus developed and we make 20 the determination to move to such. 21 CHAIRMAN WILLIAMSON: Thank you. Are 22 there any questions? 23 COMM. SCHENCK: Yes. I've been beating 24 on this issue and I appreciate all the work that you 25 and Mike and others have done on this, but I'm a 0084 1 little concerned about the CPI -- 2 MS. ERICKSON: Sure. 3 COMM. SCHENCK: -- adjustment. Is that 4 calculated year over year with a potential escalator 5 prospectively operating? There's not a recovery 6 mechanism for -- or is there for the year that's 7 already passed? 8 MS. ERICKSON: No, there's not. It's 9 calculated year over year. And, for example, this 10 year there was no CPI. 11 COMM. SCHENCK: Well, I'm a little bit 12 worried about the possibility of inflation, that the 13 consumer -- the CPI numbers could go up substantially 14 and yet real estate, which is what we're paying for 15 here, may not go up. I think we could see 16 commodities, wheat, grain, pork bellies, all the sort 17 of things that would go into making up a CPI go up 18 rather substantially with a decrease in the dollar, 19 but we may not see any change in real estate prices or 20 valuations, and I certainly don't think we're seeing 21 much of it in the short term. 22 Where are you in the negotiations with 23 these people? Is this a done deal as far as they're 24 concerned, or is there -- 25 MS. ERICKSON: Oh, absolutely not. 0085 1 Nothing has been signed. 2 COMM. SCHENCK: I would like you to go 3 back to them and see if we can get an adjustment on 4 the CPI inflater if we can show that there has not 5 been a corresponding change in the real estate 6 valuations in the central business district. 7 MS. ERICKSON: Okay. 8 COMM. SCHENCK: I don't think it's fair 9 for us to be paying a CPI increase where real estate 10 has not gone up -- 11 MS. ERICKSON: All right. 12 COMM. SCHENCK: -- real estate prices. 13 MS. ERICKSON: Certainly. We'll take a 14 look at that. 15 COMM. SCHENCK: Thanks. 16 MS. ERICKSON: All right. Thank you. 17 AGENDA ITEM NO. XVII 18 CHAIRMAN WILLIAMSON: Let's see. Our 19 next item is -- this is a proposed new rule for 20 Terminal Printed Instant Games. This is to conduct -- 21 the purpose is to conduct and authorize a Terminal 22 Printed Instant Game. And we have Robert Tirloni and 23 Pete Wassdorf. So, Gentlemen? 24 MR. TIRLONI: Good morning again, 25 Commissioners. For the record, my name is 0086 1 Robert Tirloni. I am the Products Manager for 2 the Commission. And Mr. Wassdorf is here. 3 I'm going to start off today by taking 4 us through a PowerPoint to talk about how the game -- 5 the proposed game would actually function and how it 6 would work. And then Pete is here to handle the legal 7 proceedings related to the rules. 8 Commissioners, the rules before you 9 today for your consideration provide for a new type of 10 game, a Terminal Printed Instant Game. If eventually 11 adopted and approved, the agency would then have three 12 categories of games total: So we would have our 13 instant scratch-off games, which we sell $2.8 billion 14 worth a year; we would have our on-line games, such as 15 Lotto Texas, Pick 3, Cash 5, Texas Two Step, Mega 16 Millions; and then we would have our new category of 17 game or games called Terminal Printed Instant Games. 18 And those can take two different forms 19 or two different shapes. A Terminal Printed Instant 20 Game can be an add-on game, and we already have add-on 21 games on our on-line games. We have Megaplier on Mega 22 Millions, and we have Sum It Up on Pick 3 and on 23 Daily 4. The easiest -- or it could be a standalone 24 game where you don't have to purchase one of our 25 existing games. The game would just stand alone on 0087 1 its own, and I'm going to show you examples of all of 2 these in a second. 3 The easiest way to think about a 4 Terminal Printed Instant Game is to envision a 5 scratch-off game ticket that basically resides on 6 GTECH's gaming system. The tickets would be printed 7 from the on-line terminal on demand as players make 8 that purchase or request that purchase from retailers. 9 The wins and the nonwins in a Terminal Printed Instant 10 Game are already predetermined just as they are in our 11 scratch-off games. 12 So what I would like to first do is show 13 you an example of a Terminal Printed Game as an 14 add-on, then show you an example of a standalone, and 15 then kind of show you what the prize structure would 16 look like as it sits or resides on GTECH's gaming 17 system. 18 So in this mockup, we'll use Lotto Texas 19 as the game example. So a player can go into one of 20 our licensed retail locations and buy Lotto Texas. 21 They can pick their own numbers or Quick Pick their 22 numbers just as they do now, and for an extra dollar, 23 they can choose to play this Terminal Printed Instant 24 Game. For this example, let's just call it Extra. 25 That is the name of an add-on game that Arizona has 0088 1 used. 2 So the player makes their lotto 3 purchase. As I said, they would opt to play the 4 add-on game feature, the Terminal Printed Instant 5 Game, and the retailer would place that wager, and the 6 ticket would print out of the on-line terminal. Now, 7 as soon as the player receives this ticket and looks 8 at it, and in this example you can see the player has 9 an 18, that's one of their base numbers in the base 10 game, and one of their extra numbers is also 18. So 11 as soon as the player gets this ticket and sees that 12 they've matched these numbers, they've automatically 13 won $500 in this example. 14 So they can take that Lotto Texas 15 ticket, they can hand it right back to the retailer, 16 the retailer validates that ticket on the spot, can 17 pay them their $500 prize. And then what happens is 18 a -- what we call a trailer ticket or an exchange 19 ticket prints so that they have a ticket with their 20 base Lotto Texas wager for whenever that next drawing 21 is. So that's an example of a Terminal Printed 22 Instant Game as an add-on game. 23 This is an example of a standalone 24 Terminal Printed Instant Game. This is a concept that 25 I believe Virginia launched recently. It's called 0089 1 Dodge Ball. And again, you don't have to play one of 2 our existing on-line games. You can just walk in and 3 in this example ask for Dodge Ball, and it plays like 4 a scratch-off game would play. You would follow the 5 instructions on the ticket. In this example, it's an 6 elimination game. You're crossing out your players' 7 numbers or jerseys if it matches the Dodge Ball 8 number. And then it explains to the player, based on 9 the number of jerseys that remain, what prize they 10 win. 11 This is a very elementary example of a 12 prize structure that would reside on GTECH's gaming 13 system. So in my example that I've showed you, let's 14 say that this is basically a game with 5 million 15 tickets. I didn't try to put 5 million boxes onto the 16 chart. So I've jumped from 23 to 5 million. 17 This prize structure would be developed 18 and created in coordination with GTECH, and the actual 19 file itself would be created by GTECH Printing, and it 20 would then be loaded onto GTECH Texas' gaming system. 21 This is exactly how we create these games. Currently 22 our instant ticket manufactures develop and create 23 these scratch-off games, we sign off on the prize 24 structure, we sign off on all the different aspects of 25 the game. They create the game, they create the 0090 1 validation files, they send those files to GTECH, and 2 GTECH loads those files onto their gaming system. 3 The prize structure that sits on the 4 gaming system or resides on the gaming system is 5 basically just a large grid with positions or tickets, 6 and the tickets will be sold in sequence as requests 7 are made statewide by players. 8 Another way to picture this is to 9 picture one extremely large pack of tickets sitting 10 out on GTECH's gaming system. And again, as people 11 come in and play the game, we sequentially sell 12 through that grid one ticket by one ticket by one 13 ticket. 14 So let me -- let me walk you through 15 just a basic example. So say we turn the game on 16 right now, and the first player in buys a Lotto Texas 17 ticket and opts to play the add-on game. So they get 18 the very first ticket in the sequence. So in this 19 example, the very first ticket is a winner, and it's a 20 $5 winner, again, already predetermined just like our 21 scratch-off games are. 22 And then what the software basically 23 does is represents that $5 win on the ticket. So 24 since I have a ticket example that shows you a $500 25 win, we'll jump up to position seven. So let's say we 0091 1 sequentially sell through tickets one, two, three, 2 four, five, six and we get to ticket seven. So the 3 person that comes in makes their purchase, opts to 4 choose or play the add-on game, the next ticket in the 5 sequence of seven, that's a winning ticket. So the 6 system then has to represent that as a $500 win. 7 So I'm going to go back to my ticket 8 that I showed you earlier. So basically the software 9 knows that it's a $500 win, and so it basically knows 10 that it has to create or format that $500 win on the 11 ticket. So it knows it has to give the player, in 12 this case a match, in this case it was the 18s, so 13 that the player gets that $500 win on the ticket. 14 What are some of the features of these 15 games? The first bullet I've already -- I've already 16 covered, but GTECH Printing will create these game 17 files and send them to GTECH Texas. They'll be loaded 18 on the gaming system. The files will be created using 19 the same security controls that are currently in place 20 that we use to produce our instant scratch-off games. 21 And GTECH has a lot of different security measures in 22 place. File access attempts are all logged, and those 23 attempts or those logs are auditable. And again, this 24 is the same process or the same measures that are in 25 place for our instant scratch-off game validation 0092 1 files. 2 The agency staff will be working on game 3 closing procedures. These procedures, once developed 4 and approved, will provide players with all the same 5 assurances and safeguards that we currently have in 6 place for our scratch-off games related to zero top 7 prizes. And so again, these games will operate 8 exactly the same. 9 What are the benefits of this type of 10 game? Well, as we talk about in these monthly 11 meetings frequently, we believe the benefit and the 12 success of these scratch-off games is the fact that 13 players can buy these tickets, scratch them off, and 14 they immediately know if they've won a prize or not. 15 So these tickets provide immediate gratification. Our 16 drawing games do not. Pick 3 and Daily 4 are probably 17 our on-line games that are closest to our scratch-off 18 games because there's two drawings a day, six days a 19 week. Our Lotto, our Two Step, our Mega Millions, 20 those each have two drawings a week. 21 So we know there's a big lag between 22 when you can actually buy a ticket and then when we 23 have a drawing, and that lag is -- in some days could 24 be, you know, three, four days. If you buy a ticket 25 on Sunday morning for Lotto, you don't know if you've 0093 1 won a prize until Wednesday until about 10:15 at 2 night. 3 So this is a -- this provides immediate 4 gratification to players on this product category, or 5 it can be an add-on to this product category. So 6 obviously it's a new sales revenue source. And in 7 addition, it has the potential to increase the base 8 game sales because for the add-on game, you've got to 9 buy one of the existing base games in order to play. 10 And it also provides retailers with a new game, again 11 that provides the immediate gratification, but it does 12 not provide the inventory concerns and the inventory 13 management issues that this product provides for 14 retailers. 15 That is my summary of how the games 16 could work. If you allow us to publish these rules, 17 receive public comment and if eventually these rules 18 are adopted, our plan would be to lunch an add-on 19 game, as I just showed you, on Lotto Texas. We're 20 still talking about and considering other games that 21 we could -- that we could add -- that we could add the 22 Terminal Printed Instant Games to. So we're not there 23 yet, but if approved we, would definitely launch this 24 on Lotto to start with. 25 I'm happy to answer questions about the 0094 1 game -- the game functioning if I can. We have -- we 2 have people from GTECH here that could also talk to 3 the software. So I'm happy to do that. 4 COMM. SCHENCK: I have a couple of 5 questions. I suspect we may have some public comment 6 on this topic. 7 CHAIRMAN WILLIAMSON: Uh-huh. 8 COMM. SCHENCK: But one thought I have 9 is -- on the legal side is this seems a lot closer to 10 an instant random kind of drawing, kind of a slot 11 machine activity, and I suspect we're going to hear 12 that criticism. But in legal's opinion that is fine 13 because there's no random generator at the point of 14 sale, but it's predetermined on the system? 15 MR. WASSDORF: Yes, Commissioner, there 16 probably are a number of dissimilarities. The only 17 similarity to a video lottery-type situation is that 18 this is purchased from an electronic machine, but the 19 dissimilarities far exceed that. There's a definition 20 in the statute identifying what a "video lottery 21 machine" is. It defines it. It says that it's a 22 machine into which you place money; that the purchaser 23 places the money; that the machine does a random 24 generation through using microprocessors of 25 determining the win or loss; and that it pays coupons 0095 1 for -- or cash directly out of the machine; that it 2 involves a video display screen, et cetera. 3 And this -- this is really not going to 4 involve any of those except that it comes off of an 5 electronic form. This game will not be played on a 6 video lottery terminal as defined in the act. This 7 game will not even be played on a standalone lottery 8 dispensing machine that can be operated by the 9 consumer. It can only be used through a purchase from 10 the clerk of a licensed retailer on the regular 11 lottery machine that is used to purchase lottery 12 tickets. There is no random generation done at -- 13 contemporaneously with the sale. It only accesses the 14 database or spreadsheet, if you will, in sequential 15 terms just the same way you would one of these lottery 16 tickets just taking the next one. 17 COMM. SCHENCK: Okay. Well, I 18 appreciate the legal issue, but I have two more 19 concerns. How do we audit this game when these 20 predetermined -- your box with 5 million squares in 21 it, let's say, is predetermined and loaded onto 22 GTECH's system. Are there going to be number codes to 23 match up with the tickets that are printed out later 24 so that someone can verify that, in fact, the winners 25 were identified and that the system itself -- someone 0096 1 can go back and confirm that there was supposed to 2 be 1 million winners in that 5 million string, and, in 3 fact, 1 million winners claimed prizes? 4 MR. TIRLONI: Well -- and if GTECH wants 5 to come up to weigh in, they can, but what typically 6 happens on every single game -- scratch-off game that 7 we produce is there is an audit conducted of the -- of 8 the game itself after the game is produced, and we 9 would have to have those same audits for these 10 Terminal Printed Instant Games to ensure that the game 11 was created according to the prize structure and 12 according to the gaming and programming parameters 13 that were developed and signed off on and approved 14 just as we do for these games. 15 COMM. SCHENCK: Will there be some 16 permanent record of the initial load of what sequence 17 of tickets are going to be sold and which will be 18 winners and losers and some way to go backwards and 19 confirm that the payouts were made in accordance with 20 that preloaded program? 21 MR. GRIEF: Certainly. And I'll ask 22 Joe Lapinski from GTECH to come up and talk a little 23 bit to that, Commissioner. 24 While he's coming up, though, Robert, if 25 you would touch on the information about this type of 0097 1 game that would be available to the public every day 2 via our Website? 3 MR. TIRLONI: Yeah, we'd actually have 4 two different options. Just as on our Website we have 5 a page created for each game that shows all of the 6 prize tiers and the number of prizes available by 7 prize tier and then the number of claims, we would 8 have Web pages that do the same for these Terminal 9 Printed Instant Games. 10 And in addition, at the point of 11 purchase, players would be able to ask the retailer to 12 print out the prize structure for the Terminal Printed 13 Instant Game right there on the spot. So somebody 14 could say, you know, "I'd like to see the Extra prize 15 structure for Lotto," and the retailer would be able 16 to print out a report that shows the top prize is 17 $500, all the different prize tiers, and that way the 18 player would have all that information available at 19 the point of purchase. 20 And the Web pages would update nightly 21 just as our scratch-off game Web pages update. So 22 today if you go onto our Web page and you pull up any 23 one of our games, let's talk about the Spotlight game 24 because we talked about it earlier, you would be able 25 to see, by prize tier, the number of prizes available, 0098 1 and then you'd also be able to see the number of 2 prizes claimed through end of business yesterday. And 3 we would have all of those same features for the 4 Terminal Printed Instant Games in that same fashion. 5 So you'd be able to go see Extra for Lotto, all the 6 prize tiers, what's available and what's been claimed. 7 MR. LAPINSKI: For the record, I'm 8 Joe Lapinski, the Deputy Account Development Manager 9 for GTECH Texas. 10 Commissioner, the ability to audit the 11 game just like an instant ticket game can be done 12 completely at the close of the game. And there's 13 also, as Robert referenced, the ability to monitor by 14 tier the remaining prizes at each tier. So if you 15 were seeing prizes claimed in excess of the game 16 design, you could monitor -- you would see that in 17 monitoring at a high level. 18 The specific transaction and wager 19 information associated with the game is encrypted and 20 secured in a way that there is no individual access 21 while the game is active, but we can definitely sit 22 down with the staff and if there needs to be 23 additional audit or monitoring capability that's not 24 there, we can design that into the code so that it can 25 be done. 0099 1 COMM. SCHENCK: Well, you've touched on 2 another question I was about to ask, so I'll go ahead 3 and ask it. It seems to me there's a layer of 4 security involved with a broad dissemination of those 5 scratch-off tickets that would be absent with this 6 game. I mean, if this is pre-loaded onto a GTECH 7 computer, if someone were to access that game at GTECH 8 and know that the big win is about to go out, 9 obviously that would be of concern. So we would be 10 relying extremely heavily, in a way we don't have to 11 on the scratch-off tickets, on GTECH's controls over 12 access to this computer. 13 MR. LAPINSKI: And then the key piece 14 there is the data is presented, prepared into a 15 filing, encrypted independent of any of our software 16 or operations personnel so that the data that goes 17 into the system is encrypted and secured in a way that 18 you can't visually look at it in a file. So, you 19 know, I know it was characterized -- the previous 20 comment is it's like a spreadsheet. It's a little 21 different in a sense to look at the data without 22 having access to the algorithms used to encrypt the 23 data, it's not going to appear to the naked eye to 24 make any sense. 25 COMM. SCHENCK: Who does the encryption? 0100 1 MR. LAPINSKI: That's all done when it's 2 prepared by the printing company, and then the files 3 are just delivered to GTECH and loaded on the system. 4 Now, once the files are on the system, 5 the logical access is restricted to software code 6 only, and the access to information for that file is 7 done by the system. Any access by an individual would 8 have to be arranged and then monitored and completely 9 auditable. So any access outside of the regular code 10 of the system would be apparent. 11 COMM. SCHENCK: Okay. One -- in theory 12 then would the printing company, if it wanted to, 13 pre-load, let's say, the big winning tickets at the 14 front end, the first day, and then send people out, 15 for instance, just buy the heck out of this game the 16 first day, the first 500 -- and that's an extreme 17 example. I'm wanting to test this notion. If the 18 printing company knows where the winners are, let's 19 say, and let's say front loads them or back loads 20 them, there's a potential security concern there. 21 Right? 22 MR. TIRLONI: Commissioner, just as for 23 these games, there's programming parameters put in 24 place that say that prizes have to be fairly and 25 evenly distributed throughout the run of the game. So 0101 1 I think that would -- I think that would adjust -- 2 COMM. SCHENCK: Who is monitoring the 3 printing company for the purpose of assuring that 4 they're doing that? 5 MR. TIRLONI: We get an independent 6 auditor that sends us an audit report after every game 7 is produced and after it's delivered to us. Before we 8 release that game for sale, we make sure we have that 9 independent auditor's report that they've gone 10 through, they have verified the approved and executed 11 prize structure, and that they -- that the programming 12 parameters set out for that particular game have been 13 reviewed and verified and met in the actual production 14 of the game. 15 COMM. SCHENCK: One last question for 16 me, and this is at the point of sale. I sometimes see 17 at retail locations that the retailers or the clerk 18 has preprinted Quick Pick tickets for people who just 19 want to buy a ticket. What's to stop someone of a 20 mind to do such a thing, to print out in the 21 morning -- let's say to buy two or three Lotto Texas 22 games with the extra feature on it, they would know 23 immediately by looking at the ticket whether it's a 24 winner or loser. Right? So why don't they just take 25 the losers, put them up on top of the machine, and 0102 1 then throughout the course of the day as people come 2 in to buy the extra, just keep a rolling inventory of 3 looking to see if they've got a winner, give them the 4 loser or even just keep handing out the losers and 5 screening the next layer of sales to make sure that 6 the -- they're going to give the people that are 7 playing the losers and hold on potentially to the 8 winners? That's a problem, isn't it? The retailer 9 right now can't see what's underneath that unless 10 they pinprick. 11 MR. TIRLONI: That's correct; that's 12 correct. Michael, I think, has a response. 13 COMM. KRAUSE: Well, I've got a comment 14 on that. Isn't that a little bit like the person that 15 goes in and buys several tickets and then says to the 16 retailer, "Well, here, you go and check my winnings 17 for me while I go shop"? I mean, that's being stupid. 18 COMM. SCHENCK: The problem is I think, 19 depending on how the machine is physically set up, you 20 can't see necessarily when the ticket is printing out 21 of the top. Maybe you always can. Maybe that's the 22 answer. 23 MR. ANGER: I wouldn't say that you 24 always can. In many cases, similar to the Vacuum 25 Fluorescent Display unit that I talked about, the unit 0103 1 does face out toward the customer, the customer can 2 see, you know, the machine while the transaction is 3 taking place. But the one thing that's at least 4 resident in our existing terminals is they're pretty 5 loud when they produce a ticket. And, you know, it's 6 the familiar ka-chunk, ka-chunk, ka-chunk sound that 7 you hear. I'm not sure how that will appear on the 8 court reporter's record. 9 (Laughter) 10 MR. ANGER: But the fact is that, you 11 know, this all goes back to our consumer production 12 efforts and the fact that our players are pretty 13 savvy. And if there is a retailer who is engaging in 14 a type of practice that seems out of the ordinary or 15 there's something that doesn't seem right about it, 16 you know, our experience has been they're pretty good 17 about reporting those types of things to us. And then 18 that gives us the opportunity to go and investigate 19 those types of situations. 20 The scenario that you described, you 21 know, could somebody try to engage in that practice? 22 I believe absolutely somebody could try to engage in 23 that practice. I don't think that they could engage 24 in that with our players for very long without someone 25 bringing that to our attention and giving us an 0104 1 opportunity to look into it. 2 COMM. SCHENCK: You see what I'm saying, 3 though? 4 MR. ANGER: Yeah, yeah. 5 COMM. SCHENCK: The clerk who works the 6 five to midnight shift comes in at five o'clock, buys 7 a dollar ticket with the extra feature, it's a loser, 8 puts it on top of the machine right next to where the 9 ticket is going to spit out. The next person comes 10 and buys the extra feature, gets the old ticket, and 11 then when after they leave, they check to see if 12 that's a winner. If it's a winner, they cash it. If 13 it's a loser, they put it right back and just keep 14 recycling. That's a concern that those tickets don't 15 create. 16 And we do have people from time to time 17 attempting to pinprick the existing ticket. That's a 18 lot more effort than just leaving a losing ticket on 19 top of the machine. 20 MR. TIRLONI: Commissioner, we have -- I 21 have a list of looks like about 10 to 12 other states 22 that are running either an add-on Terminal Printed 23 Game or a standalone, and so we can certainly reach 24 out to those states and get information from them 25 about your concern. 0105 1 COMM. SCHENCK: I think that would be 2 helpful. I wonder if any of those states have 3 corporal punishment for shooting lottery players. 4 (Laughter) 5 COMM. SCHENCK: Those are my concerns. 6 COMM. KRAUSE: I don't have any big 7 concerns, but my question is that if we've got a $500 8 prize, I know there's some convenience stores in, you 9 know, high crime areas, they don't like to keep a lot 10 of cash available for the cashier. And so I just 11 wanted to ask about that. 12 And then also is there, you know, any 13 evidence that if somebody, you know, enjoys their 14 instant gratification they turn around and buy some 15 more tickets? 16 MR. TIRLONI: What we would try to do at 17 the prize structure for these games is to keep the top 18 prize, at least at the start, at right about the $500 19 level, not go higher, because we want the retailer to 20 be able -- the retailers can pay up to $599. We want 21 the retailer to be able to pay that prize out. We 22 don't -- because we're striving towards that immediate 23 win and that instant gratification, we want the 24 retailer to be able to pay that prize on the spot. We 25 don't want those tickets to print out and then have to 0106 1 tell the player "You've got to go to one of our claim 2 centers to get paid." 3 The prize structures that we'll create 4 will have a variety of prize levels, most likely 5 starting with a break-even prize of $1 going all the 6 way up to $500. So there will be numerous prize tiers 7 in between. 8 COMM. KRAUSE: Well, does that mean that 9 retailers that choose not to leave that much cash in 10 the register would say "Well, we're not going to 11 participate in this particular game"? 12 MR. GRIEF: Robert, could you talk about 13 the similarities between this and all of our instant 14 products and then the other ways retailers are allowed 15 to pay players as well? 16 MR. TIRLONI: Uh-huh. The issue that 17 you're bringing up could be, as Gary just mentioned, 18 the exact issues that we would face with any of our 19 scratch-off games. I'm sure there are situations 20 where, depending on what time of day you go into a 21 retail location, you could win $50, and the retailer 22 might not have enough cash on hand to pay you. So 23 that challenge or that concern exists and has existed 24 for quite some time. 25 Retailers can also pay by business check 0107 1 or money order if they don't have the cash available. 2 COMM. KRAUSE: Okay. 3 COMM. SCHENCK: They can't pay in goods 4 or services, though. Right? They can't say "I'll 5 give you three gallons of milk and a carton of 6 cigarettes." 7 MR. TIRLONI: No, sir; no, that's not 8 permitted. 9 COMM. KRAUSE: When you check with some 10 of our sister states on their experience, why don't 11 you ask them if there's any rollover effect of a win 12 to other -- 13 MR. TIRLONI: Products? 14 COMM. KRAUSE: Yes, at that time. See 15 if we get any benefit out of that. 16 MR. TIRLONI: I believe that -- I 17 believe that we would. What we have found on our 18 scratch-off games is retailers that are good cashing 19 retailers typically are good selling retailers because 20 as players come in with winning tickets or scratch 21 tickets to find out if they're a winner, present the 22 ticket to the retailer for payment, when the retailer 23 pays that prize out and the player is still in the 24 location, they tend to either buy additional lottery 25 tickets and/or spend those dollars on some of the 0108 1 retailer's other products. 2 So being a good cashing retailer tends 3 to pay benefits to the retailer in more than one 4 fashion, but we'll definitely -- when we reach out to 5 these other states on Commissioner Schenck's concern, 6 we'll also follow up on that, too, but I believe 7 that's what we're going to end up finding. 8 CHAIRMAN WILLIAMSON: Any other 9 questions? 10 MR. WASSDORF: And in further response 11 to Commissioner Krause's concern, retailers are not 12 required to pay, you know, those large sums. 13 COMM. KRAUSE: Okay. 14 MR. WASSDORF: So they wouldn't have to. 15 COMM. KRAUSE: Well, I'm just not as 16 familiar with our other instant winning games. So it 17 was something I wanted to know about. 18 MR. WASSDORF: Sure. 19 MR. GRIEF: What we find, Commissioner, 20 a lot of times is that the market drives that. The 21 retailers who are willing to pay prizes on the spot, 22 they tend to get the repeat business. So our players 23 and our sales tend to gravitate towards those 24 locations where they do pay those prizes. And our 25 retailers are pretty savvy. They've learned that over 0109 1 time as well. 2 COMM. SCHENCK: Well, I just want to 3 thank you. I know that we've been pushing on you to 4 come up with more creative games. I know I have a 5 number of thoughts and concerns about that sort of -- 6 what I view as my job to come up with a worst-case 7 scenario and ask you to fix it. I know GTECH has 8 worked hard on this and is doing a great job on this 9 and other games. 10 MR. TIRLONI: Thank you. 11 AGENDA ITEM NOS. XVIII AND XIX 12 CHAIRMAN WILLIAMSON: Let's go ahead, 13 Pete, to the next item -- to the next two items, why 14 don't we, since -- 15 MR. WASSDORF: With respect to the 16 rules, let me just say there is one new rule, that's 17 401.317, that are the rules for this game. In 18 addition to that, there are two proposed amended 19 rules, and the amendments are to the 401.301, that is 20 the general definitions for the games, and we had to 21 do that because we defined the game in there, and 22 we're changing the definition of the "instant games" 23 to "instant scratch-off games" so as to distinguish 24 between the scratch-off games and the terminal printed 25 instant game. 0110 1 And then the second amendment is to 2 401.302, which basically is the rules for the instant 3 scratch-off games, and we have an introductory clause 4 in there that says any reference in that section to an 5 instant game means instant scratch-off games as 6 defined in the definitions. 7 CHAIRMAN WILLIAMSON: Any questions on 8 those? 9 (No response) 10 CHAIRMAN WILLIAMSON: Okay. Thank you. 11 We do have public comment from 12 Bob Kohler on these three items. 13 PUBLIC COMMENT 14 MR. KOHLER: Good morning. For the 15 record, my name is Rob Kohler, and I'm here 16 representing the Christian Life Commission of the 17 Baptist General Convention of Texas. 18 I think it's important to, one, thank 19 your staff publicly for reaching out to us prior to 20 the introduction of this. We had an opportunity to 21 meet with them and kind of throw the ball back and 22 forth so that everybody kind of knew where we stood. 23 It's important for you-all to -- for you 24 to understand that the group that I represent's 25 concern is the expansion of games, the unintended 0111 1 consequences of moving beyond what the voters approved 2 in 1991 when the lottery was introduced. And so with 3 that said, we are against proposing these for 4 rulemaking. We don't think that an electronic instant 5 lottery game is a traditional lottery game as the 6 voters contemplated in 1991. 7 We would -- I would encourage you to 8 really contemplate the idea that if it is a 9 traditional lottery game, why would it just be offered 10 at clerk-assisted terminals? Why would it not be 11 offered at standalone terminals? And there's such a 12 fine line that you've even heard today about "Well, 13 there's not a random number generator." 14 I would represent to the Commission that 15 I don't know of any state that operates video lottery 16 terminals that the winners are determined through 17 random number generators. It is all predetermined 18 winners. And, in fact, if you look back at the 19 history of how video lottery terminals were 20 introduced, the argument was made that there was no 21 element of chance, there was no random number 22 generators, therefore, you don't need a constitutional 23 amendment. It is simply an electronic version of 24 existing lottery games. 25 Equally I would encourage the 0112 1 Commissioners to revisit a request for an Attorney 2 General opinion that was made back in 2005 by the 3 governing body, that we would maintain asked this very 4 same question, and that number was RQ-0413. That 5 ultimately was withdrawn by the Commission when 6 concerns were raised. 7 What we would really plead with the 8 Commission is to look at that before you move forward, 9 and at the very least request an Attorney General's 10 opinion because it is a very slippery, slippery slope. 11 And, in fact, there's precedence from this Commission 12 of doing just that on this exact subject. 13 COMM. SCHENCK: Rob, I'm sorry to 14 interrupt. 15 MR. KRCHNAK: Yes, sir. 16 COMM. SCHENCK: I just need to ask a 17 question. Do you disagree with our legal staff's 18 conclusion that this is not under the existing statute 19 of video lottery terminal? Because we have our own 20 legal definition in Texas. I mean, are you saying as 21 a matter of policy this is just a bad idea, and we 22 ought, as a matter of policy, not to approve it, or 23 are you saying it's barred as you read the -- 24 MR. KOHLER: Well -- and just so it's 25 clear, I'm not an attorney. So I'm just a consultant 0113 1 in the gambling business, but what I would put forward 2 is that you should consider the Attorney General's 3 opinion that was GA-103, that there are -- the 4 definition that describes "video lottery terminal" in 5 the statute is not in the real word what constitutes 6 the electronic representation of instant lottery 7 tickets. So that's -- 8 COMM. SCHENCK: Well, I'm generally with 9 you on the idea that if there's ambiguity in the 10 statute, we ought to go to the Attorney General, but 11 speaking for myself, we have a legal staff here. 12 MR. KOHLER: Uh-huh. 13 COMM. SCHENCK: And unless there's some 14 potential ambiguity in the statute that really 15 requires an Attorney General opinion, my inclination 16 is to follow the staff recommendation. But I'll tell 17 you that I hear you when I say there are -- when you 18 say there are policy concerns potentially independent 19 from whether or not this is strictly illegal under the 20 language or the statute, but I think those are two 21 separate questions. So I'm not necessarily -- 22 MR. KOHLER: And I would just encourage 23 you, Chairmen and Chairwoman, there was -- less than 24 four years ago there was a thought to do this, that 25 you would need an Attorney General's opinion on it. 0114 1 That was stopped. So I would encourage -- along that 2 thinking, I would hope that you would consider that. 3 What's changed in those four years? We would 4 represent what's changed -- 5 COMM. SCHENCK: Well, as you say, Rob, 6 it was stopped. So I wasn't here four years ago. I 7 don't know what it was, but it seems to me we have a 8 staff legal position. I'll go look at that. 9 MR. KOHLER: Okay. 10 COMM. SCHENCK: But the fact that there 11 was a request for an Attorney General opinion that was 12 stopped doesn't seem to me to be helping the argument 13 that we need to go ask for an Attorney General 14 opinion. I don't know why the Attorney General 15 opinion was stopped, but I'm more -- to be direct with 16 you, I'm more interested in what your ethical concerns 17 are for the operation of the game because my suspicion 18 is that our staff is probably not wrong. I'm not 19 hearing you say that you're contesting it's wrong, but 20 just that we should go ask the Attorney General, and I 21 understand your suggestion. So what is the -- but 22 what is the ethical, moral objection to this form of 23 game? 24 MR. KOHLER: Well, I'm not here to 25 represent an ethical or moral objection to this game, 0115 1 Commissioner, nor the folks that I represent. Their 2 concern is introducing predatory products to -- to the 3 folks of this state. And an electronic version of an 4 instant lottery ticket when -- if you look back at 5 the -- your own demographic studies showing the 6 population in this state that are participating in 7 your products, this doesn't slow that down. In fact, 8 I didn't hear where this was being targeted. We have 9 no other opportunity but to look at what the results 10 of your owner study is. And instead of addressing 11 that, you're putting a rocket on the bike and going in 12 these same neighbors with a more aggressive product. 13 Commissioner Schenck, to your -- to your 14 question regarding the extra and the -- that concerns 15 us as well, protecting players. You gave an example 16 of a game that -- and we shared with the staff -- that 17 to a large extent could be -- we would be interested 18 in discussing, the extra product added onto another 19 game. But it's the standalone instant that you talked 20 about somebody printing the extra game and finding out 21 whether you're a winner or not and then selling those 22 losers to players. A standalone instant game that for 23 some reason or another it's been determined it's not 24 available on a standalone terminal, pressing that 25 immediately and finding out whether you're a winner or 0116 1 not, setting that aside and passing it on to players. 2 And, Commissioner Krause, when you asked 3 about the winnings being rewagered -- 4 COMM. KRAUSE: Uh-huh. 5 MR. KOHLER: -- in the lottery business, 6 that's something very hard to quantify because up 7 until games like this, because so much of the 8 tickets come from the -- so much of the sales comes 9 from the instant scratch tickets, and there's no 10 record of -- there's no individual record of sales and 11 being rewagered, you know, money getting back. 12 I can tell you from looking at the 13 casino business that, you know, approximately 14 85 percent of winnings are rewagered, and you can tell 15 that through -- because think track cash in, cash out, 16 prizes warded. So the lottery industry has never -- 17 but it's been our experience that looking at the 18 casino business that it's quite high. 19 So I'd like to close. I appreciate the 20 opportunity. We will participate in the rulemaking 21 process and -- but we would encourage you not to move 22 forward with this until an AG opinion is requested. 23 CHAIRMAN WILLIAMSON: Thank you. 24 MR. KOHLER: Yes, ma'am. Thank you. 25 CHAIRMAN WILLIAMSON: So, Commissioners, 0117 1 do you want to move forward with putting this out 2 there to receive public comments? 3 COMM. SCHENCK: I think I'd like to hear 4 what the staff recommendation is right now. My 5 instinct is right now I'm not a "yes" vote, subject to 6 getting some more answers, and I really would like 7 some more amplification about other than legal 8 objections to this rule, which I think other than 9 legal objections can be very relevant to the policy 10 decision we make, but I don't want to slow down the 11 rulemaking because it's quite possible that all these 12 answers will be provided. 13 So I'm looking at Gary. It's your 14 instinct to go forward with the public comment and 15 then see where that takes us? 16 MR. GRIEF: Yes, Commissioner Schenck. 17 I want to point to the process. We have a very, I 18 think, well-defined and elaborate rulemaking process 19 that allows the Commissioners to propose these rules 20 and then get all the formal benefit of taking public 21 comment in from anyone who might be interested in 22 providing such comment. We'll take that comment in 23 written format, and then we'll also schedule a 24 particular day for a public comment hearing where 25 staff will take verbal comment in as well. 0118 1 From staff's perspective, I would 2 certainly encourage the Commission to avail yourself 3 of that process and go through that and have the 4 benefit of receiving that comment. 5 At the same time, Commissioner Schenck, 6 you've tasked us with a couple of items that we need 7 to get back to you on, and we'll do that during that 8 period of time, if that pleases the Commission. 9 COMM. KRAUSE: Well, that doesn't stop 10 us from asking for an Attorney General opinion down 11 the road, does it? 12 MR. GRIEF: It certainly does not. 13 COMM. KRAUSE: So anywhere along the way 14 once we, you know, gather all the public comment and 15 the additional legal analysis we're asking for, then 16 we can still decide to do that kind of thing if we 17 want to? 18 MR. GRIEF: That is correct, 19 Commissioner. 20 CHAIRMAN WILLIAMSON: And don't we 21 already have a date set for a public hearing or 22 meeting with the staff, I believe? 23 MR. WASSDORF: Chairman Williamson, we 24 do have a date set. And in your files, it says 25 10:00 a.m. on August 5th. As it turned out, that was 0119 1 at the same time of the Bingo Advisory Commission 2 meeting, and so we moved it to that afternoon at 3 2:00 p.m. on August 5th as the recommended day for the 4 public hearing. And all of the copies that we 5 provided to the public have that 2:00 p.m. time in 6 there. 7 CHAIRMAN WILLIAMSON: Great. I would 8 like to go ahead and post it out there, get our 9 comments in, address some of the things that have been 10 brought up because, you know, we haven't made a final 11 decision on it, and the public comment may alter some 12 of the things we do, or may not. 13 MS. KIPLIN: And so to be clear, the 14 staff recommendations would be that you would propose 15 amendments to the two existing rules, that's 401 and 16 302, and that you would propose a new rule for the 17 purpose of receiving public comment and authorize the 18 staff to publish these rules in the Texas Register? 19 CHAIRMAN WILLIAMSON: Right, which is 20 what we currently have. 21 COMM. SCHENCK: But proposing a rule 22 doesn't mean necessarily we're ready to adopt the 23 rule. 24 CHAIRMAN WILLIAMSON: No. 25 COMM. SCHENCK: Right, Kim? 0120 1 MS. KIPLIN: That is absolutely correct. 2 The purpose of proposing rulemaking is to receive that 3 public comment and to be able to evaluate and analyze 4 that public comment. And I think -- I think 5 historically what we've seen is that as a result of 6 public comment the Commission has revised that which 7 they've published for public comment to that which 8 they've adopted. In some cases, I recall that you-all 9 have even pulled down rules. Others you adopted 10 exactly as you proposed, but the whole purpose of 11 publishing these rules is to receive that public 12 comment for that evaluation to occur. 13 COMM. SCHENCK: Well, I'll make the 14 motion that we adopt the staff recommendation to 15 publish the rule for public comment. 16 CHAIRMAN WILLIAMSON: And for the -- to 17 make the two changes on the other two rules? 18 COMM. SCHENCK: Yes. 19 COMM. KRAUSE: Second. 20 CHAIRMAN WILLIAMSON: All in favor? 21 COMM. SCHENCK: Aye. 22 COMM. KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 MS. KIPLIN: Commissioners, I have memos 25 to pass to you so that we can keep that in the file in 0121 1 terms of the approval for the memo. 2 AGENDA ITEM NOS. XXI, XXII AND XIII 3 CHAIRMAN WILLIAMSON: All right. While 4 we're doing that, Mr. Grief, the next three items will 5 be the Mega Millions contract, GTECH report and just 6 your Executive Director report. We'll just take care 7 of all those items at the same time. 8 MR. GRIEF: Very good, Madam Chair. 9 Commissioners, in addition to the information that I 10 provided you in your notebooks today, I have a few 11 other items I'd like to brief you on. 12 The first thing I'd like to cover is 13 that from June 22nd to June 25th, I attended the 14 Spring Director's meeting, which was held in 15 Nashville, Tennessee, and which was sponsored by the 16 National Association of State and Provincial 17 Lotteries, which is known as NASPL, which Texas is a 18 member. 19 This is an annual event, and it brings 20 together all the state lottery directors around the 21 country. It's an opportunity for the directors to 22 talk about common challenges and opportunities and new 23 game ideas, discuss industry best practices and 24 standards. And in addition at least one full day 25 during this time is allocated for meetings to occur of 0122 1 both the Powerball and the Mega Millions multistate 2 lottery consortiums, and those meetings are what I 3 want to highlight for you today. 4 The Multistate Lottery Association, 5 which oversees Powerball, which is also referred to as 6 MUSL, is the umbrella organization. MUSL considered 7 two issues of interest during their meeting on June 8 the 22nd. The first issue that MUSL took up was a 9 request from the new Arkansas Lottery to join 10 Powerball, and Arkansas was granted admission to 11 Powerball. And my understanding is they're looking to 12 start their scratch-off tickets around November and 13 start selling Powerball possibly as early as 14 January 1st. 15 The second issue had to do with a recent 16 letter that I sent to MUSL asking them to act upon 17 their 2003 invitation for Texas to join Powerball. 18 Now, my understanding is that during this meeting a 19 member of the MUSL group produced a copy of a letter 20 which was sent from Reagan Greer, our former Executive 21 Director, back in 2003, in which Mr. Greer declined 22 the 2003 invitation to join Powerball. MUSL then 23 determined that since Texas had formally declined that 24 invitation, that that invitation had closed and it was 25 no longer valid. So, therefore, my recent letter to 0123 1 MUSL was now going to be considered as a new request 2 for Texas to join that game. 3 Subsequently a vote was taken on that 4 issue, and it was denied. It was my understanding 5 that there was a great deal of concern expressed among 6 the small border states of Texas and about the 7 potential negative impact that Texas joining Powerball 8 would have on those states' Powerball sales. 9 The following day our Mega Millions 10 group met, and I briefed our group on what had 11 occurred, at least any understanding of what had 12 occurred, in the MUSL meeting. And once we were all 13 made aware of that decision, we've set aside now the 14 idea of trying to sell both Powerball and Mega 15 Millions in Texas and in other Mega Million states, at 16 least for now. And we're turning our attention to the 17 development and the launch of a new national game, 18 with the idea being that the 12 Mega Million states 19 along with any other MUSL states that might be 20 interested in joining us would come up with a much 21 higher population and potentially offer that national 22 game at a higher price point than the one dollar that 23 we're currently selling Mega Millions and Powerball 24 today. 25 Under that concept, the game could 0124 1 potentially start with a much higher starting jackpot, 2 and jackpots could potentially reach far greater 3 levels than we currently have today in either 4 Powerball or Mega Millions. 5 At this point, it's all conceptual in 6 nature, and we anticipate another joint meeting of the 7 five member subcommittees that have been appointed in 8 both Mega Millions and Powerball to continue those 9 discussions. Now, once again, I've been asked to 10 serve as a member of the Mega Millions subcommittee, 11 and I plan on keeping you informed as we move forward 12 on that. 13 The second item I have to report to you 14 today on is the GTECH statewide sales meeting, which 15 occurred at the Hilton Hotel across the street 16 June 18th and 19th. This is an annual event, and 17 GTECH brings their sales team together from all around 18 the state, more than 300 strong, and they focus on 19 team building, the next year sales goals, the latest 20 in industry and company developments. 21 At this year's meeting, the GTECH staff 22 had the opportunity to hear from both GTECH and Texas 23 Lottery Commission senior management. They 24 participated in various breakout sessions geared to 25 both motivate and inform the staff about the latest in 0125 1 sales techniques and lottery trends. They had an 2 outside keynote speaker, and they also had an annual 3 sales award ceremony in which the top GTECH performers 4 were recognized. 5 This year I believe that every member of 6 our agency management team attended at least the 7 opening ceremonies of this event, and some staff also 8 attended the breakout sessions as well. And in 9 addition, we were verify fortunate to have 10 Chairman Williamson attend, and we were able to 11 introduce her to GTECH management and to the sales 12 force. 13 And the last item I want to cover under 14 my report, I'd like to just briefly revisit the sales 15 report that you heard earlier from Kathy and Robert, 16 especially since Commissioner Krause is relatively new 17 to the Commission. And I want to give some credit 18 where credit is due for the incredible turnaround 19 we've had this year in sales and revenue. 20 First, our advertising agency, they did 21 an incredible job in proposing and developing the 22 campaign which has featured our Spotlight game, the 23 $500 million Blockbuster. And the GTECH sales team 24 did an amazing job in prepping our retailers for this 25 game and selling it in before the game ever arrived at 0126 1 stores. As Kathy mentioned, sales from the Spotlight 2 game have accounted for almost $9 million a week in 3 the seven weeks since that game has been introduced. 4 But most importantly, I want to 5 recognize our own marketing department led by 6 Mike Anger and including Robert Tirloni and 7 Dale Bowersock and Julie Terrill, Andrew Leeper and 8 many others, who have all done an outstanding job in 9 exploring and implementing new ideas, quickly getting 10 those ideas researched, but most importantly getting 11 the game started so we can start seeing the revenue 12 that comes in. 13 I want to point out the great example of 14 initiative and team work. I want to touch on the 15 Dallas Cowboys and Houston Texans game. I believe 16 that we're going to be just -- among just a handful of 17 other state lotteries in the country who are able to 18 get their NFL games going this season. The vast 19 majority of other state lottery directors I've talked 20 to they're not able to either get their tickets 21 printed or get their agreements signed with the 22 professional football teams in their particular areas. 23 Obviously our marketing staff could not 24 have done that alone, and I want to -- I want you to 25 know that our legal team led by Kim and our financial 0127 1 team led by Kathy literally moved mountains to get 2 those agreements done and get all the things taken 3 care of that we had to do to get that game started. 4 And with all that, I think we definitely 5 have some great sales momentum going forward through 6 the end of this fiscal year and with the start of the 7 next fiscal year. And that concludes my report, and 8 I'd be happy to answer any questions that you might 9 have. 10 CHAIRMAN WILLIAMSON: Commissioners? 11 COMM. SCHENCK: Gary, can you remind me 12 of the border states, Louisiana, Arkansas, Oklahoma, 13 New Mexico, how many of them are Powerball states? 14 MR. GRIEF: With Arkansas joining, now 15 all of them. 16 COMM. SCHENCK: All of them are. 17 COMM. KRAUSE: So they ganged up on us. 18 MR. GRIEF: Let me the record show 19 Commissioner Krause said that, not Deputy Director 20 Grief. 21 (Laughter) 22 MR. GRIEF: I do know they read our 23 transcripts. 24 COMM. SCHENCK: Maybe we can talk to 25 Park and Wildlife about the out-of-state hunting 0128 1 license for bordering states. 2 Well, thank you for your reference on 3 that Gary, and I want to commend you and the staff 4 more importantly on the sales figures and GTECH 5 obviously doing a great job. It's very important. 6 CHAIRMAN WILLIAMSON: Thank you-all. 7 You've come a long way since the beginning, since it 8 all started down 10 percent or 12 percent. Great job, 9 everybody. 10 (Applause) 11 (Laughter) 12 AGENDA ITEM NO. XXIV 13 CHAIRMAN WILLIAMSON: All right. The 14 next item, Ms. Kiplin, this is yours on the orders. 15 MS. KIPLIN: Commissioners, with your 16 permission, I'd like to take Items Letters A, B, C, D 17 and E together. Commissioners, these are all 18 proposals for decisions that were issued by the 19 Administrative Law Judge at the State Office of 20 Administrative Hearings against a -- those identified 21 lottery retailers for insufficient funds being 22 available at the time that the lottery swept their 23 account. In each of those cases, the ALJ has 24 recommended revocation of the license. The staff 25 recommends that you adopt the ALJ's recommendation in 0129 1 the proposed order. 2 CHAIRMAN WILLIAMSON: Are there any 3 questions or comments? If not, would someone like to 4 make a motion to -- 5 COMM. SCHENCK: I move we adopt staff's 6 recommendation. 7 COMM. KRAUSE: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 Aye. 10 COMM. SCHENCK: Aye. 11 COMM. KRAUSE: Aye. 12 MS. KIPLIN: Commissioners, I have 13 orders. Chairman Williamson, I don't know if you'd 14 like me to wait on all those. 15 CHAIRMAN WILLIAMSON: Why don't you wait 16 until we get through with all the orders -- 17 MS. KIPLIN: Okay. 18 CHAIRMAN WILLIAMSON: -- and then we'll 19 sign them all at once, please. 20 MS. KIPLIN: We'll do. 21 Commissioner, the next letter that I'd 22 like to take up is Letter F. These are Bingo worker 23 cases, and this is a mass docket that goes over to the 24 State Office of Administrative Hearings. In each of 25 these cases, the Administrative Law Judge issued a 0130 1 proposal for decision that recommends refusing to add 2 these identified workers on the registry, and the 3 reason is for a disqualifying criminal conviction 4 against each of these individuals. The staff does 5 recommend that you adopt the Administrative Law 6 Judges' recommendation and adopt the proposed order. 7 CHAIRMAN WILLIAMSON: Is there a motion 8 to -- 9 COMM. SCHENCK: I move we adopt staff's 10 recommendation. 11 COMM. KRAUSE: Second. 12 CHAIRMAN WILLIAMSON: All in favor? 13 COMM. SCHENCK: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 MS. KIPLIN: Commissioners, the 16 remaining item is Letter G, and this is a proposed 17 agreed order -- oops, excuse me -- a proposed agreed 18 order against American Vietnam Veterinarian -- pardon 19 me, veterinarian -- Veterans. I'm not sure that they 20 would actually be able to -- 21 COMM. SCHENCK: They did use dogs in 22 Vietnam very heavily. 23 MS. KIPLIN: Yes, but this is actually 24 against American Vietnam Veterans. The enumerated 25 violations that they've agreed to are set out in the 0131 1 consent order, and there is an administrative penalty 2 that they've agreed to accept in the amount of $700. 3 In particular I'll refer you to the agreed findings of 4 fact. One violation of the Bingo Enabling Act is that 5 they played outside their license times. 6 In this case, they submitted an 7 application for a temporary Bingo license, and they 8 didn't wait until the Commission had approved it to 9 conduct Bingo. Another one was failure to withhold a 10 5 percent prize fee, and another one was not 11 maintaining for review the Bingo Enabling Act and the 12 rules of the Commission. 13 So taken in its totality of 14 circumstances, that led to a $700 administrative 15 penalty. The staff does recommend that you vote to 16 approve the proposed agreed order. 17 COMM. SCHENCK: Have these people now 18 understood what they're supposed to be doing, Phil, 19 and these were new licensees? 20 MR. SANDERSON: I don't believe they 21 were new licensees. They've been licensed for quite 22 some time. These are the first violations in the last 23 several years that I'm aware of, and I believe they 24 understand now what the process and the procedures are 25 as it relates to temporary licenses and withholding 0132 1 prize fees. 2 COMM. SCHENCK: Okay. 3 CHAIRMAN WILLIAMSON: Okay. Any other 4 questions? Is there a motion? 5 COMM. SCHENCK: I move we adopt staff's 6 recommendation. 7 CHAIRMAN WILLIAMSON: Second? 8 COMM. KRAUSE: Second. 9 CHAIRMAN WILLIAMSON: All in favor? 10 Aye. 11 COMM. SCHENCK: Aye. 12 COMM. KRAUSE: Aye. 13 MS. KIPLIN: Commissioners, with your 14 permission, I'll present the orders. 15 CHAIRMAN WILLIAMSON: All right. 16 AGENDA ITEM NO. XXV 17 CHAIRMAN WILLIAMSON: And let's see. 18 The next item was consideration or possible discussion 19 on the appointment and employment of the Executive 20 Director. I would like to pass on this item at this 21 time to -- so we can discuss it in executive session. 22 AGENDA ITEM NO. XXVI 23 CHAIRMAN WILLIAMSON: Our next item is 24 public comment, and I believe all of the -- I believe 25 that we have no further public comment. 0133 1 AGENDA ITEM NO. XXVII 2 CHAIRMAN WILLIAMSON: So at this time, I 3 move that we go into executive session at noon to 4 deliberate the appointment, employment and duties of 5 the Executive Director, the duties and evaluation of 6 the Deputy Executive Director, Internal Audit Director 7 and Charitable Bingo Operations Director, and to 8 deliberate the duties of the General Counsel and Human 9 Resources Director pursuant to Section 551.074 of the 10 Texas Government Code; to receive legal advice 11 regarding pending or contemplated litigation pursuant 12 to Section 551.071(1)(A) and/or to receive legal 13 advice regarding settlement offers pursuant to 14 Section 551.071(1)(B) of the Texas Government Code 15 and/or to receive legal advice pursuant to Section 16 551.071(2) of the Texas Government Code, including but 17 not limited to those items posted on the Open Meetings 18 notice for purposes of receiving legal counsel. Is 19 there a second? 20 COMM. SCHENCK: I second the motion. 21 CHAIRMAN WILLIAMSON: All in favor say 22 "Aye." 23 COMM. SCHENCK: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 COMM. KRAUSE: Aye. 0134 1 CHAIRMAN WILLIAMSON: The vote is 2 three -- is three. So we will go into executive 3 session at noon today, July the 8th. 4 (Recess: 12:00 p.m. to 1:12 p.m.) 5 AGENDA ITEM NO. XXVIII 6 CHAIRMAN WILLIAMSON: Let's see. The 7 Texas Lottery Commission is out of executive session. 8 The time is 1:12, and there are no actions to be taken 9 as a result of the executive session. 10 COMM. SCHENCK: No, there are not. 11 CHAIRMAN WILLIAMSON: No, there are not. 12 AGENDA ITEM NO. XXIX 13 COMM. SCHENCK: I think you can adjourn 14 us. 15 CHAIRMAN WILLIAMSON: So may -- a motion 16 to adjourn? 17 COMM. SCHENCK: I so move. 18 COMM. KRAUSE: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMM. SCHENCK: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMM. KRAUSE: Aye. 23 (Proceedings concluded at 1:13 p.m.) 24 25 0135 1 C E R T I F I C A T E 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, Kim Pence, a Certified Shorthand 7 Reporter in and for the State of Texas, do hereby 8 certify that the above-mentioned matter occurred as 9 hereinbefore set out. 10 I FURTHER CERTIFY THAT the proceedings 11 of such were reported by me or under my supervision, 12 later reduced to typewritten form under my supervision 13 and control and that the foregoing pages are a full, 14 true and correct transcription of the original notes. 15 IN WITNESS WHEREOF, I have hereunto set 16 my hand and seal this 30th day of February 2009. 17 18 ______________________________ 19 KIM PENCE Certified Shorthand Reporter 20 CSR No. 4595-Expires 12/31/09 21 Firm Registration No. 276 Kennedy Reporting Service, Inc. 22 Cambridge Tower 1801 Lavaca Street, Suite 115 23 Austin, Texas 78701 512.474.2233 24 25