0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE ? TEXAS LOTTERY COMMISSION ? 6 TUESDAY, NOVEMBER 17, 2009 ? 7 8 COMMISSION MEETING 9 TUESDAY, NOVEMBER 17, 2009 10 BE IT REMEMBERED THAT on Tuesday, 11 the 17th day of November 2009, the Texas Lottery 12 Commission meeting was held from 9:05 a.m. to 13 1:10 p.m., at the Offices of the Texas Lottery 14 Commission, 611 East 6th Street, Austin, Texas 78701, 15 before CHAIRMAN MARY ANN WILLIAMSON and COMMISSIONERS 16 DAVID J. SCHENCK and J. WINSTON KRAUSE. The following 17 proceedings were reported via machine shorthand by 18 Aloma J. Kennedy, a Certified Shorthand Reporter of 19 the State of Texas, and the following proceedings were 20 had: 21 22 23 24 25 0002 1 APPEARANCES 2 3 CHAIRMAN: Ms. Mary Ann Williamson 4 COMMISSIONERS: 5 Mr. David J. Schenck Mr. J. Winston Krause 6 GENERAL COUNSEL: 7 Ms. Kimberly Kiplin 8 DEPUTY EXECUTIVE DIRECTOR: Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: 10 Mr. Philip D. Sanderson 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - TUESDAY, NOVEMBER 17, 2009.......... 10 4 AGENDA ITEM NO. I - Meeting Called to Order....... 10 5 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action on 6 nominations and/or appointments to the Bingo Advisory Committee.......................... 13 7 AGENDA ITEM NO. III - Report, possible 8 discussion and/or action on calendar year 3rd quarter conductor information................. 34 9 AGENDA ITEM NO. IV - Consideration of and 10 possible discussion and/or action, including proposal, on amendments to 16 TAC ?402.201 11 relating to Prohibited Bingo Occasion............. 21 12 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, including 13 proposal, on amendments to 16 TAC ?402.203 relating to Unit Accounting....................... 21 14 AGENDA ITEM NO. VI -Consideration of and 15 possible discussion and/or action, including proposal, on amendments to 16 TAC ?402.401 16 relating to Temporary License..................... 21 17 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action, including 18 proposal, on amendments to 16 TAC ?402.402 relating to Registry of Bingo Workers............. 21 19 AGENDA ITEM NO. VIII - Consideration of and 20 possible discussion and/or action, including proposal, on new rule 16 TAC ?402.212 21 relating to Promotional Bingo..................... 25 22 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 23 adoption, on amendments to 16 TAC ?402.406 relating to Bingo Chairperson..................... 29 24 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. X - Consideration of and possible discussion and/or action, including 4 adoption, on new rule 16 TAC ?402.420 relating to Qualifications and Requirements 5 for Conductor?s License........................... 29 6 AGENDA ITEM NO. XI - Consideration of and possible discussion and/or action, including 7 adoption, on repeal of 16 TAC ?402.304 relating to System Service Provider............... 29 8 AGENDA ITEM NO. XII - Report by the 9 Charitable Bingo Operations Director and possible discussion and/or action on the 10 Charitable Bingo Operations Division?s activities, including updates on HB 1474 11 implementation, status of licensees, rulemaking and form revisions, audits, 12 pull-tab review, special projects, and upcoming operator training........................ 39 13 AGENDA ITEM NO. XIII - Consideration of and 14 possible discussion and/or action, including proposal, on amendments to 16 TAC ??401.402, 15 401.405, and 401.407 relating to Americans with Disabilities Act requirements................ 44 16 AGENDA ITEM NO. XIV - Report, possible 17 discussion and/or action on the Powerball game and/or agreement............................. 53 18 AGENDA ITEM NO. XV - Consideration of and 19 possible discussion and/or action, including proposal, on new rule 16 TAC ?401.317 relating 20 to Powerball On-Line Game rule, amendments to 16 TAC ??401.301 relating to General 21 Definitions and 401.315 relating to Mega Millions On-Line Game rule........................ 53 22 AGENDA ITEM NO. XVI - Report, possible 23 discussion and/or action on lottery sales and revenue, game performance, new game 24 opportunities, advertising, market research, and trends........................................ 91 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XVII - Report, possible discussion and/or action on transfers to 4 the State and the agency?s budget status.......... 100 5 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action on the agency?s 6 FY 2010 Itemized Operating Budget................. 102 7 AGENDA ITEM NO. XIX - Report, possible discussion and/or action on Lottery 8 Operations and Services contract Amendment No. 8 credit calculation................ 105 9 AGENDA ITEM NO. XX - Report, possible 10 discussion and/or action on the 81st Legislature....................................... 107 11 AGENDA ITEM NO. XXI - Report, possible 12 discussion and/or action on the lottery operations and services procurement............... 107 13 AGENDA ITEM NO. XXII - Report, possible 14 discussion and/or action, including extension on the agency's instant ticket 15 testing services contract......................... 109 16 AGENDA ITEM NO. XXIII - Report, possible discussion and/or action on the agency?s 17 contracts......................................... 110 18 AGENDA ITEM NO. XXIV - Consideration of and possible discussion and/or action on the 19 lottery operator contract, including whether the negotiation of the lottery operator?s 20 contract in an open meeting would have a detrimental effect on the Commission?s 21 position in negotiations of the lottery operator contract................................ 117 22 AGENDA ITEM NO. XXV - Report, possible 23 discussion and/or action on HUB and/or minority business participation including 24 the agency?s Mentor Prot?g? Program.............. 122 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXVI - Consideration of and/or report, possible discussion and/or 4 action on external and internal audits and/or reviews relating to the Texas 5 Lottery Commission, and/or on the Internal Audit Department?s activities, including a 6 report on a quality assurance review of the Internal Audit functions.......................... 10 7 AGENDA ITEM NO. XXVII - Report, possible 8 discussion and/or action on the Mega Millions game and/or contract..................... 126 9 AGENDA ITEM NO. XXVIII - Report, possible 10 discussion and/or action on GTECH Corporation....................................... 128 11 AGENDA ITEM NO. XXIX - Report by the 12 Executive Director and/or possible discussion and/or action on the agency?s 13 operational status, agency procedures, and FTE status.................................... 130 14 AGENDA ITEM NO. XXX - Consideration of the 15 status and possible entry of orders in: A. Docket No. 362-09-6060 ? 16 Saigon-Taipei Market B Docket No. 362-09-6061 ? 17 RG Food Mart C. Docket No. 362-09-6062 ? 18 88 Lucky Corner D. Docket No. 362-09-6063 ? 19 Scotties Kwick Stop E. Docket No. 362-09-6291 ? 20 Tower Drive Thru F. Docket No. 362-09-6292 ? 21 Pin Food Mart G. Docket No. 362-09-4963 ? 22 One Stop Food Stores, Inc. H. Docket No. 362-09-5729 ? 23 Star Food Mart I. Docket No. 362-09-5731 ? 24 Sandusky Outpost J. Docket No. 362-09-3732 ? 25 Seago Pantry #2 0007 1 K. Docket No. 362-09-5730 ? On the Run 2 L. Docket No. 362-09-990909.B-D ? In the Matter of the Refusal to 3 Add Certain Names to the Texas Lottery Commission?s Registry of 4 Approved Bingo Workers: Juan Acuna, Misty Bartlett, Jose Castro, Michael 5 Cole, Isaac Fuentes, Krystal Garcia, Steven Gibson, Kylynn Giddens, 6 Stephanie Hooper, Arley Lawhorn, Maria Mello, Jeanette Monrial, Kelly 7 Pierce, Joseph Rodriguez, and Donald Scott.................................... 130 8 AGENDA ITEM NO. XXXI - Public comment............. 40 9 AGENDA ITEM NO. XXXII - Commission may meet in 10 Executive Session: A. To deliberate the appointment, 11 employment, and duties of the Executive Director pursuant to 12 Section 551.074 of the Texas Government Code. 13 B. To deliberate the duties and evaluation of the Deputy Executive 14 Director pursuant to Section 551.074 of the Texas Government Code. 15 C. To deliberate the duties and evaluation of the Internal Audit 16 Director pursuant to Section 551.074 of the Texas Government Code. 17 D. To deliberate the duties and evaluation of the Charitable Bingo 18 Operation's Director pursuant to Section 551.074 of the Texas 19 Government Code. E. To deliberate the duties of the 20 General Counsel pursuant to Section 551.074 of the Texas Government Code. 21 F. To deliberate the duties of the Human Resources Director pursuant to 22 Section 551.074 of the Texas Government Code. 23 24 25 0008 1 TABLE OF CONTENTS (continued) 2 PAGE 3 G. To receive legal advice regarding pending or contemplated litigation 4 pursuant to Section 551.071(1)(A) and/or to receive legal advice 5 regarding settlement offers pursuant to Section 551.071 (1) (B) of the 6 Texas Government Code and/or to receive legal advice pursuant to 7 Section 551.071 (2) of the Texas Government Code, including but not 8 limited to: First State Bank of DeQueen 9 et al. v. Texas Lottery Commission 10 James T. Jongebloed v. Texas Lottery Commission. 11 Texas Lottery Commission v. Leslie Warren, Texas Attorney 12 General Child Support Division Singer Asset Finance Company 13 L.L.C., and Great-West Life & Annuity Insurance Company 14 Gametech International et al. v. Greg Abbott 15 In the Matter of Willis Willis Employment law, personnel law, 16 procurement and contract law, evidentiary and procedural law, 17 and general government law. Lottery Operations and Services 18 procurement and/or contract. Mega Millions game and/or contract. 19 Request for Attorney General Opinion No. RQ-0771-GA. 20 H. To deliberate the negotiation of the lottery operator's contract pursuant 21 to Section 467.030 of the Texas Government Code........................... 136 22 AGENDA ITEM NO. XXXIII - Return to open 23 session for further deliberation and possible action on any matter discussed 24 in Executive Session.............................. 137 25 0009 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXXIV - Consideration of and possible discussion and/or action on 4 request to set salary rate for the Executive Director position....................... 138 5 AGENDA ITEM NO. XXXV - ADJOURNMENT................ 143 6 REPORTER'S CERTIFICATE............................ 144 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0010 1 P R O C E E D I N G S 2 TUESDAY, NOVEMBER 17, 2009 3 (9:05 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is November the 17th, 8 2009. The time is 9:05. Commissioners Schenck and 9 Krause are present, so we have a quorum. 10 AGENDA ITEM NO.XXVI 11 CHAIRMAN WILLIAMSON: Commissioners, 12 with your permission, I would like to take an item out 13 of order, the consideration of report and discussion 14 or action on external and internal audits and reviews 15 relating to the Texas Lottery Commission and/or the 16 Internal Audit Department activities, including a 17 report on a quality assurance review of the Internal 18 Audit Functions. 19 Ms. Melvin, I understand that we have 20 Mr. O'Neal who conducted the review for the lottery. 21 MS. KIPLIN: Madam Chair, before we 22 begin, just for the record, I've only received two 23 witness affirmation forms. You've been provided both 24 of those. Consistent with the Commission guidelines 25 on public participation at a Commission meeting, 0011 1 that's all I got before you called the meeting to 2 order. 3 CHAIRMAN WILLIAMSON: Okay. Great. 4 Thank you. 5 Good morning. Yes, ma'am. 6 MS. MELVIN: Good morning. Thank you, 7 ma'am. Good morning, Chairman, Commissioners. For 8 the record, my name is Catherine Melvin, Director of 9 the Internal Audit Division. With me is Mr. Dennis 10 O'Neal, and he is here to present the results of a 11 recently performed quality assurance review of the 12 internal audit function. 13 MR. O'NEAL: Good morning, Chairman and 14 Commissioners. For the record, my name is Dennis 15 O'Neal. The purpose of my presentation today is 16 provide you with the results of my recently completed 17 quality assurance review of the Internal Audit 18 Department. These reviews are required every three 19 years by auditing standards. 20 The objective of the review was to 21 determine if the Internal Audit Department was in 22 compliance with required auditing standards and issue 23 an opinion on the level of compliance with those 24 standards. 25 Based on our review, it is my opinion 0012 1 that the Internal Audit Department is in full 2 compliance with The Institute of Internal Auditors' 3 international standards for the professional practice 4 of internal auditing, the United States general 5 accountability offices, governmental auditing 6 standards and the Texas Internal Auditing Act. 7 Of note, this opinion is the highest of 8 the three possible ratings. I also want to let you 9 know that during the review, I received excellent 10 cooperation from both the Internal Audit staff and 11 from management here at the agency. 12 And this concludes my remarks. You've 13 got a great Internal Audit shop. 14 CHAIRMAN WILLIAMSON: Thank you. 15 COMMISSIONER SCHENCK: Thank you. 16 CHAIRMAN WILLIAMSON: Commissioners, do 17 you have any questions or comments? 18 COMMISSIONER SCHENCK: Well, comments, 19 yes. I'm not surprised to hear that we have a great 20 Internal Audit function, but I'm glad to hear somebody 21 independent confirm it. Thank you. 22 CHAIRMAN WILLIAMSON: And thank you for 23 coming and sharing. 24 MR. O'NEAL: Thank you for inviting me, 25 Chairman. 0013 1 CHAIRMAN WILLIAMSON: Thank you. 2 MS. MELVIN: Thank you, Commissioners. 3 AGENDA ITEM NO. II 4 CHAIRMAN WILLIAMSON: Our next item -- I 5 believe this is yours, Phil. This is the 6 consideration and discussion or action on the 7 nominations and appointments to the Bingo Advisory 8 Committee. 9 MR. SANDERSON: Thank you, Chairman. 10 Good morning, Commissioners. In your notebook are the 11 nomination forms that we received from 22 individuals 12 for the three positions that are vacant, with terms 13 expiring in August of 2012. Staff reviewed the 14 nominations, reviewed the individuals and the 15 organizations they're associated with. We've screened 16 out some of the individuals and looked at certain 17 categories as it relates to the conductor and the 18 manufacturer and distributor to fill these three 19 positions with. 20 In your notebook is staff 21 recommendations that Melissa Young and Joe Williams be 22 nominated or appointed to the charity positions on the 23 committee and Emile Bourgoyne with International 24 Gameco be appointed to the manufacturer and 25 distributor position. 0014 1 And with that, I'll be glad to answer 2 any questions. 3 I believe Mr. Silver with the BAC is 4 here. He is the chair of the subcommittee for the 5 nominations. 6 CHAIRMAN WILLIAMSON: Yes. Mr. Silver, 7 go ahead and come on up and present your comments, 8 please, and what your subcommittee decided. 9 MR. SILVER: Good morning. My name is 10 Earl Silver. I'm the chair of the BAC nomination work 11 group. The nomination work group consists of 12 myself -- Earl Silver -- Kim Rogers and Pat Gifford. 13 First, I would like to thank you for 14 your commitment in helping the charities of Texas that 15 participate in bingo as their source of revenue to 16 assist them in their charitable purpose. Without the 17 guidance of the Commission and the Bingo Division, 18 these charities would be a tremendous burden upon the 19 state. 20 The nomination work group was asked to 21 do interviews on the nominees that submitted their 22 application form. We asked these nominees a series of 23 interview questions. These questions were given to me 24 when I was on the nomination committee of 2008. I 25 provided you a copy of their responses. 0015 1 All the nominees that we talked to were 2 very impressive in their desire to serve on the BAC. 3 However, the work group had to narrow down the list in 4 order to make recommendations to the Bingo Advisory 5 Committee. The categories that are available -- there 6 are two charity conductor positions and a 7 manufacturer/distributor position. 8 With the diverse background in the bingo 9 industry of the nominees, the work group decided to 10 recommend individuals that are applicable to the open 11 positions. However, we do understand that in 12 Administrative Rule 402.102(e)(6): "The Commission 13 may appoint a nominee based on staff or BAC 14 recommendation or may appoint any other nominee." The 15 BAC Nomination Work group recommendations are as 16 follows, in no particular order: 17 Larry Whittington: Larry is very 18 knowledgable, not to mention the nine years he has 19 been on the BAC. He is an asset to the board and 20 should be retained. 21 Mark Gottschalk: Mr. Gottschalk has 22 been in the bingo industry for over 15 years and is 23 very excited to be able to serve on the BAC. 24 Suzanne Taylor: Her experience and 25 knowledge of the bingo industry is tremendous. She 0016 1 has spent countless hours on helping do research for 2 numerous work groups. Ms. Taylor continues to spend 3 her time on the betterment of charitable bingo in 4 Texas. She is truly an asset and a credit to the 5 Bingo Advisory Committee. 6 Darin Peters: Having someone from a 7 large distributor is a great help. Throughout the 8 years, Mr. Peters and his company has assisted the BAC 9 with gathering information on many different issues 10 regarding bingo. They have access to many different 11 halls across the state which assist in the development 12 of ideas on what is working or what isn't working. I 13 believe we need a distributor from within Texas, and 14 Mr. Peters will be able to help extensively. 15 W. L. Davis: Mr. Davis has extensive 16 knowledge in bingo and also in running a board with 17 numerous individuals. He has great experience and 18 would bring some new ideas to the BAC. Also Mr. Davis 19 lives in Amarillo, Texas. This is an area that is not 20 represented on the BAC, and it's very important that 21 we have people from every area of our state. Bingo is 22 very different from Amarillo to Dallas to San Antonio 23 and to Austin. 24 Melissa Young: Ms. Young will be a 25 tremendous asset on the BAC. Her experience as 0017 1 Executive Director of Texas Charity Advocates and her 2 involvement as a licensed charity that plays bingo in 3 Texas, as well as her knowledge of the Texas 4 Legislature, will be a valuable tool in helping 5 charitable bingo in Texas. 6 Ronnie Baker: Mr. Baker has been in the 7 bingo industry for 27 years. He has the desire to 8 make the bingo industry better by streamlining rules 9 and regulations that inhibit the growth of bingo in 10 Texas. He would also like the chance to assist in 11 bringing new and improved products as well as new 12 technology to Texas that would also aid in the 13 proceeds to the charities. 14 Thank you. And I will be happy to 15 answer any questions to the best of my ability. 16 CHAIRMAN WILLIAMSON: Thank you, 17 Mr. Silver. 18 MR. SANDERSON: Madam Chair, I would 19 like to also add and reiterate what Mr. Silver said. 20 In the years that I've been associated, which is 14 21 years with the BAC, Bingo Advisory Committee and the 22 nomination process, this is probably the best overall 23 group of nominees that we've received, and it was very 24 difficult to narrow it down to just three individuals. 25 And as you know and as some are aware, 0018 1 this process takes place every year. And the next 2 round of nominations will begin at March through April 3 of 2010 for the next fiscal year appointments. So I 4 would encourage any individual that did not get 5 appointed in this go-round, if they have a strong 6 desire to continue to serve on the BAC, to submit 7 their nomination form for the next go-round. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you, Phil. 10 Commissioners, do you have any comments 11 that you would like to share? 12 COMMISSIONER SCHENCK: I do. 13 Commissioner Krause and I both had a fairly strong 14 sense, and I'm sure that perhaps the Chair shares this 15 sense, that some additional developments in the 16 make-up and changes in the make-up of the BAC were 17 probably overdue. 18 I think that the quality of this group 19 of applicants was commendable. And, Phil, I think you 20 probably worked the phones and stirred things up here 21 to the point where we got quite a few high quality 22 applicants. And I think the focus of the BAC is the 23 critical thing. And I think we need to be not just 24 looking after the interest of the particular 25 participants and the business interests that they 0019 1 bring with them but the overall interest of increasing 2 the revenues to these charities across the state and 3 increasing the ethical conduct of bingo in the state, 4 and I think that message has been clearly sent. And I 5 agree with you, that hopefully we'll have a larger 6 group of people again seeking new seats here in March 7 and April. 8 But I thank you for your hard work. 9 MR. SILVER: Thank you. 10 CHAIRMAN WILLIAMSON: Commissioner, do 11 you have anything? 12 COMMISSIONER KRAUSE: I'm looking 13 forward to looking over these prospects. 14 MR. SILVER: Thank you. 15 CHAIRMAN WILLIAMSON: Earl, thank you. 16 And please thank your subcommittee for all of us. 17 MR. SILVER: Yes, ma'am. 18 CHAIRMAN WILLIAMSON: Y'all did a great 19 job. 20 Is this an action item? 21 MR. SANDERSON: It's an action item. 22 You have the opportunity to move ahead and appoint the 23 three individuals to fill the positions that are 24 vacant at this time. If you so desire and would like 25 to schedule some additional interviews -- I know the 0020 1 Chairman and Commissioner Schenck have talked with the 2 three individuals that we recommended. And if you 3 would like to speak with any of the other individuals, 4 we'll be glad to set that up. It's completely at your 5 pleasure. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you. 8 Commissioners, do you want to go ahead 9 and fill these spots or do you want to continue with 10 any additional interviews? 11 COMMISSIONER SCHENCK: Well, as Phil 12 indicated, I did have the opportunity to speak 13 personally with each of the three people being 14 recommended by staff. I was very comfortable with 15 them. My main concerns were that they were engaged in 16 charitable activities that we're comfortable with and 17 are consistent with the mission of this agency, and 18 they are. They're not engaged in other activities 19 that I'm less comfortable with. But I would be happy 20 to defer the consideration if others would like more 21 time to study these particular nominees or others. 22 COMMISSIONER KRAUSE: Well, considering 23 that we have three more spots coming open in April, 24 then let's go ahead and fill these now and consider 25 the new names that we've received today for the April 0021 1 nominations. 2 COMMISSIONER SCHENCK: With that, Madam 3 Chairman -- or Chairwoman -- I would move that we 4 adopt staff recommendation and appoint these three 5 proposed members to the Bingo Advisory Committee. 6 CHAIRMAN WILLIAMSON: Is there a second? 7 COMMISSIONER KRAUSE: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 COMMISSIONER SCHENCK: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 COMMISSIONER KRAUSE: Aye. 12 CHAIRMAN WILLIAMSON: So moved. 13 Earl, will you certainly encourage all 14 these people that we would like -- the ones that 15 didn't get appointed this time, to certainly just to 16 keep their name in the hat, and anybody else. And we 17 appreciate everything y'all have done in this effort. 18 AGENDA ITEM NOS. IV, V, VI AND VII 19 CHAIRMAN WILLIAMSON: Okay. 20 Commissioners, with your permission, I think we'll 21 take the next four agenda items together. These all 22 have to do -- three. Sorry. These are all of the -- 23 are there three or four with -- 24 MR. SANDERSON: Agenda Item No. III. 25 CHAIRMAN WILLIAMSON: Well, Agenda Item 0022 1 III, but we're going to take the next four. 2 MS. KIPLIN: That's right. There's 3 four -- 4 CHAIRMAN WILLIAMSON: Right. 5 MS. KIPLIN: -- proposed rulemakings 6 that we request that you consolidate -- 7 CHAIRMAN WILLIAMSON: Right. 8 MS. KIPLIN: -- because they deal with 9 implementation of House Bill 1474. And Sandy 10 Joseph -- Assistant General Counsel, Sandy Joseph, is 11 here to present that item for you. 12 CHAIRMAN WILLIAMSON: All right. 13 MS. JOSEPH: Good morning, 14 Commissioners. For the record, my name is Sandra 15 Joseph, Special Counsel of the Legal Division. 16 Items IV through VII are draft proposed 17 amendments to bingo rules. Item IV is amendments to 18 Charitable Bingo Rule 402.201 concerning prohibited 19 bingo occasions. Item V is 402.203 related to unit 20 accounting. Item VI is 402.401 regarding temporary 21 license. And item VII is 402.402 regarding registry 22 of bingo workers. 23 The purpose of the amendments for all of 24 these rules is to make the rules consistent with 25 changes to the Bingo Enabling Act resulting from HB 0023 1 1474 which was effective October 1, 2009, and to 2 provide additional clarification and guidance. 3 The staff recommends that these rules be 4 published in the Texas Register, in order to receive 5 comment, for a period of 30 days. A hearing has been 6 scheduled for Monday, December 14, 2009, at 9:00 a.m., 7 at the Hobby Building, due to the fact that this room 8 will be under remodeling. Staff recommends that you 9 approve publication of these rules in order to 10 initiates the rulemaking process. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioners, do you have any 13 questions? 14 And this is just part of the ongoing 15 process of implementing the House Bill. Right? 16 MS. JOSEPH: Yes, it is. 17 CHAIRMAN WILLIAMSON: Okay. Y'all do 18 get feedback from the industry when appropriate in 19 some of this? 20 MS. JOSEPH: Yes, definitely. 21 COMMISSIONER SCHENCK: And I assume in 22 advance of these rules. We've already talked to the 23 most directly affected industry participants? 24 MS. JOSEPH: Yes. 25 MR. SANDERSON: There are several rules 0024 1 where the amendments are strictly dealing with changes 2 as a result of House Bill 1474, and is to have our 3 rules be consistent with the language in the statute. 4 And those we're just moving forward with. There are 5 another eight to ten rules that are brand-new rules or 6 have major revisions that we will take to the industry 7 and the BAC at their next meeting before they come to 8 you for proposal. So they will have their comments 9 before they come to the Commission. 10 CHAIRMAN WILLIAMSON: All right. Thank 11 you. 12 And I believe this is an action item as 13 well? 14 MS. KIPLIN: Yes, it is. 15 CHAIRMAN WILLIAMSON: Commissioners, 16 would you -- 17 COMMISSIONER KRAUSE: I make a motion to 18 adopt these -- to set these for hearing. 19 CHAIRMAN WILLIAMSON: Second? 20 COMMISSIONER SCHENCK: I second the 21 motion to publish in the Texas Register. 22 MS. KIPLIN: Yes, public comment. 23 CHAIRMAN WILLIAMSON: All in favor, 24 "Aye." 25 COMMISSIONER SCHENCK: Aye. 0025 1 CHAIRMAN WILLIAMSON: Aye. 2 COMMISSIONER KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Motion passes. 4 Thank you. 5 MS. JOSEPH: With your permission, I'll 6 present you with T-bar memos to initial at the 7 conclusion of my presentation. 8 AGENDA ITEM NO. VIII 9 CHAIRMAN WILLIAMSON: Okay. And I 10 believe the next item is consideration and discussion, 11 including a proposal, on a new rule, TAC 402.212, 12 relating to promotional bingo. 13 And, Ms. Joseph, that's you again. 14 MS. JOSEPH: Yes. Item VIII is draft 15 proposed new bingo rule, 402.212, related to 16 promotional bingo. The purpose of the new rule is to 17 clarify requirements for conducting an exempted 18 promotional bingo game as authorized under ?2001.551 19 of the Bingo Enabling Act. The statute permits a game 20 to be conducted without a license for promotional or 21 advertising purposes if the game is conducted by or 22 through a newspaper, a radio or a television station; 23 if the game is open to the general public and there is 24 no charge to play. 25 The statute also provides that the 0026 1 Commission, by rule, may require a person conducting 2 such a game to notify the Commission and provide the 3 Commission with information about the game. The 4 proposed rule does this. It provides definitions, 5 restrictions, notification and recordkeeping 6 requirements with regard to promotional bingo. 7 And the staff recommends that this rule 8 also be published in the Texas Register in order to 9 receive comments, for a period of 30 days. A hearing 10 has also been scheduled at the same time and place as 11 I mentioned for the previous recommended proposals. 12 CHAIRMAN WILLIAMSON: Thank you. 13 Commissioners, do you have any 14 questions? 15 COMMISSIONER SCHENCK: I have some 16 questions about this. Sandy, this is new for us. 17 We've had this authorization, as I said, for a while. 18 I believe this is a totally new rule. I see that 19 we're requiring recordkeeping obligations on the 20 television, radio and other media outlets that want to 21 engage in this promotional bingo. 22 I'm not sure if we have the authority -- 23 and, Kim, I'll look at you for this -- but what, if 24 anything, could we do to protect what is done with the 25 personal information that's being requested from the 0027 1 individual players? If the players are having to say 2 who they are, where they live, give personal 3 information and things of that nature, is there any 4 limitation on what the entity engaging in the 5 promotional bingo can do with that personal 6 information? Can they sell it, for instance? What, 7 if anything, are we doing to take care of the privacy 8 interests of the people who are playing? 9 MS. JOSEPH: I don't believe we're 10 requesting information on the players. 11 COMMISSIONER SCHENCK: Okay. Just the 12 people who are engaging in the -- 13 MS. JOSEPH: Yes. 14 COMMISSIONER SCHENCK: Okay. What about 15 the winners? 16 MS. JOSEPH: I don't believe we 17 specifically asked for that either. 18 COMMISSIONER SCHENCK: But we've made 19 clear that they cannot be employees of the radio 20 station or television station, under our rules? 21 MS. JOSEPH: I don't believe that's in 22 there either. Okay. Let me double check that. 23 MS. KIPLIN: Commissioner Schenck, to 24 your direct question whether you have the authority to 25 require recordkeeping, I had that same question with 0028 1 Ms. Joseph, and we discussed the extent of the 2 authority as it's set out in terms of recordkeeping. 3 And you actually do, under your statute. Then the 4 question is the scope and the extent of the 5 recordkeeping, and I think that's what your main issue 6 is. 7 COMMISSIONER SCHENCK: Yes. And I do 8 see here in your rule, "A person whose identification 9 is required to be disclosed on a . . . bingo license 10 record may not be involved in the conduct of a 11 promotional bingo game, have any ownership," 12 et cetera, et cetera. I think that's probably 13 addressing the concern that I have. 14 MS. JOSEPH: So the recordkeeping 15 requirements in the rule, it's records of the 16 transactions connected with the game. 17 COMMISSIONER SCHENCK: Okay. The Chair 18 has, I think, answered my concern. 19 MS. JOSEPH: Okay. 20 COMMISSIONER SCHENCK: A player cannot 21 be required to provide personal information, money, 22 goods or service in order to receive playing 23 materials. Okay. 24 MS. JOSEPH: Okay. 25 COMMISSIONER SCHENCK: That was my 0029 1 concern. Thank you. 2 CHAIRMAN WILLIAMSON: Commissioner 3 Krause, do you have anything? 4 COMMISSIONER KRAUSE: No, ma'am. 5 CHAIRMAN WILLIAMSON: All right. This 6 is an action item as well. Do I hear a motion? 7 COMMISSIONER SCHENCK: Madam Chair, I 8 move that we adopt staff recommendation that we 9 publish this proposed rule for comment in the Texas 10 Register. 11 COMMISSIONER KRAUSE: Second. 12 CHAIRMAN WILLIAMSON: All in favor? 13 COMMISSIONER SCHENCK: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: Motion passes. 17 AGENDA ITEM NOS. IX, X AND XI 18 CHAIRMAN WILLIAMSON: And we will 19 continue on with -- I believe we'll be taking IX, X 20 and XI together. Is that correct? 21 MS. JOSEPH: Yes, Madam Chairman. 22 CHAIRMAN WILLIAMSON: Continue with 23 those, please. 24 MS. JOSEPH: Items IX through XI are 25 recommended adoption of rule proposals. These rule 0030 1 proposals were previously published in the Texas 2 Register. The public has had the opportunity to 3 comment for a period of 30 days. A public hearing was 4 held. At the public hearing, a representative of the 5 Bingo Interest Group did appear and supported all of 6 the proposed rules. No written comments were 7 received. 8 Item IX is amendments to Bingo Rule 9 402.406 pertaining to bingo chairperson. The purpose 10 of this amendment is to remove language that's 11 unnecessary, because it's now contained in the Act 12 itself as a result of recent legislation. And the 13 staff recommends adoption of this Rule, 402.406, 14 without changes. 15 CHAIRMAN WILLIAMSON: Kim, do we need to 16 take these one at a time, as an action item, or do we 17 do all three? 18 MS. KIPLIN: I think you can take them 19 all at the same time if you want, as long as the 20 motion is clear, if that's the Commission's wish, to 21 adopt each one of the orders -- I mean, each one of 22 the rules. Pardon me. 23 So you can continue with the 24 presentation. 25 CHAIRMAN WILLIAMSON: Yes. Go ahead and 0031 1 continue with the next two. 2 MS. JOSEPH: Item X concerns new Rule 3 402.420, qualifications and requirements for a 4 conductor's license. The purpose of this rule is to 5 clearly set forth the qualifications, requirements and 6 documentation needed for an application to conduct 7 charitable bingo. The staff recommends adoption of 8 this rule, with a few changes made only to correct 9 typographical errors and to provide consistency in 10 punctuation and style throughout the rule. No 11 substantive changes have been made to the rule. So 12 the staff recommends adoption of Rule 402.420, with 13 minor changes. 14 Item XI is recommended repeal of Bingo 15 Rule 402.304 pertaining to system service provider. 16 The staff recommends repeal of this rule because it is 17 no longer needed as a result of the Legislature's 18 repeal of statutes pertaining to system service 19 provider. That repeal was effective October 1st. 20 Staff recommends adoption of the repeal. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioners, do you have any questions 23 or comments? 24 COMMISSIONER SCHENCK: A quick question 25 and clarification, really. The middle rule, 402.420, 0032 1 qualification of requirements for a conductor's 2 license, Sandy, I understood you to say that the 3 changes were made only to correct typographical errors 4 and provide consistency in punctuation and grammar, 5 et cetera. 6 MS. JOSEPH: Right. 7 COMMISSIONER SCHENCK: This is a new. 8 Rule. So when you say changes were made to correct 9 those things, you're not pointing to any former rule, 10 you're just talking about -- 11 MS. JOSEPH: To the proposed -- 12 COMMISSIONER SCHENCK: -- the text as it 13 was proposed in the published version in the Texas 14 Register? 15 MS. JOSEPH: That's correct. 16 COMMISSIONER SCHENCK: Okay. That's 17 fine. 18 MS. JOSEPH: If substantive changes were 19 made to the rule as proposed, we would need to 20 propose -- 21 COMMISSIONER SCHENCK: Republish. 22 MS. JOSEPH: -- republish it. 23 COMMISSIONER SCHENCK: Yes. 24 MS. JOSEPH: But that's not the case. 25 COMMISSIONER SCHENCK: Very good. 0033 1 Thanks. 2 CHAIRMAN WILLIAMSON: Do I hear a motion 3 to approve these three? 4 MS. KIPLIN: That's right. It would be 5 a motion to adopt each of these rules, consistent with 6 the staff recommendation. 7 MS. JOSEPH: As recommended by the 8 staff. 9 CHAIRMAN WILLIAMSON: And do I hear a 10 motion to adopt these three rules? 11 COMMISSIONER SCHENCK: I make that 12 motion. 13 COMMISSIONER KRAUSE: I second that 14 motion. 15 CHAIRMAN WILLIAMSON: Do we need to 16 spell out in our proposal to adopt -- 17 COMMISSIONER SCHENCK: I propose that we 18 adopt the three rules in our materials, Items IX, X 19 and XI, and adopt amendments to 16 TAC 402.406, 20 402.420 and 402.304, as recommended by staff. 21 CHAIRMAN WILLIAMSON: Do I hear a 22 second? 23 COMMISSIONER KRAUSE: Second. 24 CHAIRMAN WILLIAMSON: All in favor? 25 COMMISSIONER SCHENCK: Aye. 0034 1 CHAIRMAN WILLIAMSON: Aye. 2 COMMISSIONER KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Motions pass. 4 MS. JOSEPH: And I have T-bars for your 5 approval, and Ms. Kiplin has orders. 6 AGENDA ITEM NO. III 7 CHAIRMAN WILLIAMSON: Okay. We will go 8 back to Item III, report, possible discussion and/or 9 action on calendar year 3rd quarter conductor 10 information. 11 Phil, I believe this is your lead item. 12 MR. SANDERSON: Madam Chairman, 13 Commissioner, Bruce Miner, the Manager of the Taxpayer 14 Services Department, is here to provide you with 15 information as it relates to the 3rd quarter 16 information reported by conductors conducting bingo. 17 MR. MINER: Good morning, Commissioners, 18 Chairman Williamson. For the record, my name is Bruce 19 Miner, and I'm the Manager of the Taxpayer Services 20 Department of the Charitable Bingo Division. And I'm 21 here to present to you the information for the first 22 three quarters of 2009, as reported by our licensed 23 charities. 24 I would like to point out that the 25 receipts for the third quarter only are slightly down 0035 1 from the same quarter last year. However, the gross 2 receipts for the three quarters of 2009 are 3 approximately 2.2 percent greater than for the same 4 period of 2008, and 5.8 percent greater than for the 5 first three quarters of 2006. 6 Instant bingo sales increased from 7 $192.5 million in the first three quarters of 2006, to 8 $245.2 million in the first three quarters of 2009. 9 Regular card sales continue to decline, from 10 $190.6 million for the three quarters of 2006, to 11 $161.6 million for the same period in 2009. And 12 electronic sales increased slightly, from 13 $115.5 million for the three quarters of 2006, as 14 compared to $120.9 million for the same period of 15 2009. 16 And this slide shows the prize payout 17 percentage for regular bingo and instant bingo for the 18 past four years. The prize payout percentages for 19 regular bingo have leveled off as compared to the 20 previous years. However, it's still higher than over 21 the years. Instant bingo prize payouts have shown a 22 gradual decline over the past four years. 23 This slide captures the trend of net 24 receipts, which are gross receipts minus prizes. 25 Total net receipts for the first three quarters of 0036 1 2009 increased 3.1 percent over the same period of 2 2008, increased 6.1 percent over the first three 3 quarters of 2006. 4 And this bar chart compares each of the 5 major categories of expenses, along with charitable 6 distributions, which are shown to the far right of 7 this slide and shows the amount of the disbursements 8 for this first three quarters of each year since 2006. 9 The highest disbursement categories continue to be 10 salaries and rent payments. 11 This slide shows the average attendance 12 per occasion as well as average spend per player shown 13 over the past four years. This slows that the average 14 attendance has gradually increased since 2007, but 15 it's still down from 2006. There has been a 6.3 16 percent increase in the average spend rate per player 17 since 2006. 18 This chart reflects the net revenue and 19 reported distributions and the required distributions, 20 which are based on the 35 percent calculation, for the 21 first three quarters of each of the past four years, 22 and this slide indicates the net revenue for the 23 period used to determine the actual and required 24 distributions. Net revenue for the four quarter 2008 25 and first and second quarters of 2009 was slightly 0037 1 down from the same periods last year and slightly 2 greater than the same reporting period for 2006. 3 Reported charitable distributions have 4 increased 11.2 percent since 2006. The reported 5 charitable distributions for the first three quarters 6 of 2009 are the highest they've been since the first 7 three quarters of the Year 2000. The actual reported 8 charitable distributions shown here in the blue line 9 continue to run about three times the amount of the 10 required distributions shown here in red. 11 In your notebook is additional 12 information from an analysis performed by Arlette 13 Taylor, our operational planning and performance 14 coordinator. 15 And that concludes my report for this 16 agenda item. Are there any questions? 17 CHAIRMAN WILLIAMSON: Thank you. 18 Commissioners? 19 COMMISSIONER KRAUSE: No, ma'am. 20 COMMISSIONER SCHENCK: Bruce and Phil, 21 why in the last year, when revenues are slightly down, 22 have we seen this increase in charitable distribution? 23 MR. SANDERSON: Well, the net revenue is 24 still running a little bit higher than the charitable 25 distribution. This last quarter we actually had a 0038 1 very good distribution quarter, a little over 2 $9 million for the quarter itself. And I think a lot 3 of that has to do with the House bill that was passed. 4 Some organizations were beginning to deplete their 5 bingo accounts. We did see a drop in undistributed 6 proceeds reported to us of about $2 million over the 7 same period last year. 8 COMMISSIONER SCHENCK: All right. So 9 that's not likely to recur, then? This is probably a 10 one-time occurrence, because I see these two lines 11 converging on our chart, and it looks like a very 12 favorable trend towards increased distributions 13 generally. But are you thinking this might be the one 14 time -- 15 MR. SANDERSON: I think that it's going 16 to be probably more consistent with where we're at. 17 The green and the blue lines should be running 18 parallel right next to each other, as it relates to 19 the net revenue and the distributions, because the new 20 House bill requires them to distribute that net 21 revenue. 22 COMMISSIONER SCHENCK: Thank you, sir. 23 CHAIRMAN WILLIAMSON: Any other 24 questions? 25 COMMISSIONER KRAUSE: No, ma'am. 0039 1 CHAIRMAN WILLIAMSON: Thank you, Bruce. 2 MR. MINER: Yes. 3 AGENDA ITEM NO. XII 4 CHAIRMAN WILLIAMSON: Our next item is 5 XII, report by the Charitable Bingo Operations 6 Director and possible discussion or action on the 7 Charitable Bingo Operations Division activities, 8 including updates on House Bill 1474 implementation 9 and status of licensees, rulemaking and form 10 revisions, audits, pull-tab review, special projects 11 and upcoming operator training. 12 MR. SANDERSON: Commissioners, in your 13 notebook are the reports for the September activities 14 of the Bingo Division, which was e-mailed to you 15 shortly after the October Commission meeting. The 16 October activities is in your notebook, for the 17 activities performed in the month of October. 18 House Bill 1474 implementation is moving 19 smoothly. Of course, we've still got several 20 rulemakings to work through and some form revisions 21 that we're still working on. And the rest of the 22 division is busy working on issuing licenses and 23 conducting audits and inspections. 24 Be glad to answer any questions you 25 have. 0040 1 CHAIRMAN WILLIAMSON: Commissioners, do 2 you have any questions? 3 COMMISSIONER SCHENCK: No, thank you. 4 COMMISSIONER KRAUSE: No, ma'am. 5 CHAIRMAN WILLIAMSON: Thank you, Phil. 6 AGENDA ITEM NO. XXXI 7 CHAIRMAN WILLIAMSON: At this time we 8 will bring Item XXXI, public comment. We'll bring 9 that up. We have one. 10 Mr. Howry, is that correct? 11 MS. KIPLIN: Yes, I believe you had 12 three witness affirmation forms. Two you received 13 before you convened; one you received afterward. That 14 was from Mr. Howry, representing Mr. Willis. 15 CHAIRMAN WILLIAMSON: All right. 16 MS. KIPLIN: This is under public 17 comment. And I need to remind you that under the 18 public comment item, because it's not noticed on the 19 topic, whatever you hear, you're limited in your 20 deliberations. You can deliberate to put whatever the 21 topic is on a future Commission meeting agenda. You 22 can respond to a specific inquiry. It's within the 23 discretion of the Commission. I think in the past the 24 deliberations have been very limited. So I just need 25 to remind you of the constraints of the Open Meetings 0041 1 Act. 2 CHAIRMAN WILLIAMSON: Thank you. 3 Mr. Howry. 4 MR. HOWRY: Thank you. Good morning. 5 My name is Randy Howry. I'm a lawyer that practices 6 law here in Austin, Texas. I have the privilege of 7 representing Willis Willis. Willis is sitting next to 8 me. 9 Five months ago, Willis Willis bought 10 the winning ticket in the Mega Million Texas Lottery 11 game. Five months later, as we sit here today, Willis 12 has yet to be paid his million dollar winnings from 13 the Texas Lottery. 14 As I understand the current position of 15 the Texas Lottery, it is this: That Mr. Joshi, the 16 person who allegedly stole this lottery ticket, has 17 been declared the winner of the Texas Lottery -- 18 incredibly -- the agent of the Texas Lottery who sold 19 this ticket, the agent of the Texas Lottery who 20 accepted this ticket, the agent of the Texas Lottery 21 who presented this ticket here in Austin, this very 22 building, and claimed the million dollar prize, the 23 person who then has apparently escaped to Nepal. The 24 person who is currently under indictment by the Travis 25 County District Attorney's office has been declared 0042 1 the winner of the Texas Lottery by this very 2 organization. 3 Today we're here, Willis is here. It's 4 your opportunity to meet him; it's his opportunity to 5 meet you. And it's your opportunity to right this 6 wrong. It's your opportunity to consider all the 7 facts and make a decision that the person who bought 8 the winning Texas Lottery ticket, the person who 9 played by all the rules, who broke no rules, the 10 person who tendered his ticket to an agent of the 11 Texas Lottery, no different than if he had presented 12 it here in Austin, should receive his winnings, should 13 receive his million dollars. 14 Five months after he bought the winning 15 lottery ticket, Willis has been forced to retain 16 counsel. Willis has been forced to set up meetings 17 with the Texas Lottery because, otherwise, he's been 18 told by the Texas Lottery that he has no recourse but 19 to attempt to track down his winnings on his own -- 20 incredibly. There is no doubt that you know by now 21 that the eyes of Texas, the eyes of the nation, the 22 eyes of the world are on this case. 23 Today Willis Willis, as he walked 24 through the airport at Dallas Love Airport, four 25 different people, as he walked through the airport, 0043 1 said, "Willis, where you going? What are you doing? 2 Have you received your money?" People are watching 3 Willis. And today -- and I know in a moment that 4 you're going to retire in executive session. You'll 5 have the opportunity to discuss this case. It's on 6 your agenda. And you'll have the opportunity today to 7 do the right thing, to right this wrong and to reward 8 or award Willis his winnings in this case. 9 On behalf of Willis, I appreciate this 10 time, I appreciate this opportunity. And I would 11 appreciate, if it's appropriate -- after you retire to 12 executive session, we'll wait. Willis will be here -- 13 to directly address Willis with your public comments 14 as to why it is that to this point, Willis has yet be 15 to be paid his money, to address the comments made by 16 Kim Kiplin, your General Counsel, that the winner of 17 the Texas Lottery is Mr. Joshi. Do you agree with 18 that position? We challenge you to answer that 19 question. 20 We ask you to address the question of 21 the $350,000, thereabouts, that's being held by the 22 Travis County District Attorney. Do you agree with 23 Ms. Kiplin that the Lottery Commission has no position 24 with regard to those funds or do you agree with the 25 Travis County District Attorney that Willis Willis is 0044 1 the rightful winner of the Texas Lottery, that Willis 2 Willis -- those funds that are currently being held 3 are the funds owned by Willis Willis? We ask for some 4 communication from you directly on this issue. 5 And I really do appreciate your time and 6 attention. We're here to answer any questions that 7 you have, be glad to answer those questions. And if 8 not, I would appreciate your public comment at the 9 appropriate time as to the case of Willis Willis. 10 Thank you. 11 CHAIRMAN WILLIAMSON: Thank you for your 12 comment. 13 MR. HOWRY: Yes, ma'am. 14 AGENDA ITEM NO. XIII 15 COMMISSIONER SCHENCK: All right. We 16 will continue on with agenda Item No. XIII, 17 consideration of and possible discussion and/or 18 action, including proposal, on amendments of TAC 19 401.402, .405, .407 relating to the Americans With 20 Disabilities Act. 21 And Deanne. Hi. 22 MS. RIENSTRA: Good morning, 23 Commissioners. Deanne Rienstra, Assistant General 24 Counsel. Ed Rogers is also here to answer question. 25 Pursuant to a rule review conducted 0045 1 earlier this year, it was determined that certain of 2 the Commission's administrative rules regarding the 3 Americans With Disabilities Act needed to be amended 4 and clarified to correctly reflect the agency's 5 practices and procedures. 6 Therefore, amendments have been proposed 7 for 401.402 relating to the general agency 8 requirements of compliance for lottery licensed 9 facilities, 401.405 relating to barrier removal, and 10 401.407 regarding receiving and investigating 11 non-accessibility complaints of lottery licensed 12 facilities. 13 The staff recommends the Commission 14 initiate the rulemaking process by publishing the 15 proposed amendments in the Texas Register to receive 16 comment. A comment hearing is planned for 17 December 14th, if approved. 18 We are happy to answer any questions. 19 CHAIRMAN WILLIAMSON: Commissioners, do 20 you have any questions? 21 COMMISSIONER SCHENCK: I see that we're 22 under the general requirements provision, eschewing 23 any obligation on our part to go out and physically 24 inspect any of the retail establishments. Can you 25 remind me how many retail outlets we're dealing with 0046 1 in this state, generally? 2 MR. ROGERS: For the record, Ed Rogers, 3 Retailer Services Manager. 4 Commissioner, we have approximately 5 16,700 individual locations selling lottery tickets. 6 COMMISSIONER SCHENCK: And at this point 7 what we're trying to accomplish with this proposed 8 rule change is to stand by the certification the 9 applicant themselves makes. And are we going to be 10 asking them to confirm this? How often is the license 11 reissued? 12 MR. ROGERS: Sir, they're required to 13 certify that they're in compliance in their original 14 application and also in every renewal, license renewal 15 that they submit. Those renewals are required every 16 two years. 17 COMMISSIONER SCHENCK: All right. Do we 18 have anyone -- the ADA has been out there since the 19 mid-nineties or earlier, I think. Are we 20 communicating to the retail establishments when there 21 is a substantial development in the ADA, by regulation 22 or otherwise, so that they're aware of what they're 23 certificating to when they fill in their license 24 application with us? Or is GTECH doing that for us? 25 MR. ROGERS: Not specifically with any 0047 1 updates that may take place since -- what we do, when 2 individuals apply for a license, if they have 3 questions regarding the ADA, we have a number of 4 resources that we direct them to, to help them become 5 informed on what the requirements for ADA compliance 6 are. 7 COMMISSIONER SCHENCK: Okay. But at 8 this time, we basically have a box for them to check: 9 You are or are not compliant with the Americans With 10 Disabilities Act, on our application form? 11 MR. ROGERS: Yes, we do have a question 12 where they are required to answer "Yes" or "No," that 13 they're in compliance. We do follow up on complaints 14 that we receive. And if we receive a complaint from 15 the public regarding a location that's licensed, we 16 will physically inspect that license and follow up 17 with the retailer on what's required for them to come 18 into compliance. 19 COMMISSIONER SCHENCK: How many 20 complaints do we get in a year typically? 21 MR. ROGERS: In the last five years, 22 we've received five complaints regarding the Americans 23 With Disabilities Act. One was related to smoking in 24 licensed locations. The other four did relate to 25 physical barriers. Three of those retailers, as a 0048 1 result of the work that we did with them after the 2 inspection, came into compliance. One of the 3 locations voluntarily surrendered their license after 4 we did the inspection of the store. 5 COMMISSIONER SCHENCK: I'm glad to hear 6 we're doing some good. Okay. Thank you. 7 COMMISSIONER KRAUSE: Are the license 8 applications made under penalties of perjury? 9 MR. ROGERS: Yes, sir, there is a 10 certifi- -- well, I'm not sure about the penalty of 11 perjury. There is a certification that a person has 12 to make that the information contained in the 13 application is true and correct to the best of their 14 knowledge. 15 COMMISSIONER KRAUSE: Okay. Well, I 16 guess that satisfies me because, you know, I had some 17 experience over at the Texas Alcoholic Beverage 18 Commission where, you know, people indicated that they 19 were a legal resident and they were, you know. But 20 then by some kind of internal rule, they were 21 determined not to be. 22 And so some of these things are a matter 23 of opinion: "You know, I've complied with ADA." 24 "No, you haven't." 25 And so what I really don't want is for 0049 1 them to, you know, get themselves into the awkward 2 position of, you know, possibly having violated a 3 criminal statute just because they believed that they 4 were in compliance with the ADA. 5 MR. ROGERS: The certification language 6 does say "True and correct to the best of my 7 knowledge." I'm not sure if that really addresses 8 your concern. 9 COMMISSIONER SCHENCK: So we're not 10 making these people swear that they're lawyers when 11 they sign this form, that to their knowledge, they're 12 ADA compliant. They probably have no idea what the 13 ADA is, do they? 14 MR. ROGERS: Well, we do get questions. 15 So, no, we're not asking them to take on that role. 16 We do have retailers, when they apply for a license, 17 they make inquiries as to what the ADA is about, how 18 does it apply to them, what are we looking for? And 19 when we get those questions, you know, we do direct 20 them to resources so that they can be informed. 21 COMMISSIONER SCHENCK: Well, let's just 22 slow down here for a second. You say direct them to 23 resources. I hope that we do -- I know we're not 24 their lawyers. I know we can't give them legal 25 advice. But we must tell them it's a federal law that 0050 1 requires retail -- 2 MR. ROGERS: Yes. 3 COMMISSIONER SCHENCK: -- establishments 4 to be reasonably available to people with physical 5 disabilities, like a wheelchair ramp, things of that 6 nature. We at least give them that before we send 7 them off to -- 8 MR. ROGERS: Yes, we do. I apologize. 9 COMMISSIONER SCHENCK: -- or wherever we 10 send them to get further guidance? 11 MR. ROGERS: Yes, sir. We do have 12 discussions with them. We let them know what we're 13 looking for or we can provide them information as to 14 the kinds of things that we're looking for in our 15 inspections. And we'll discuss it with them to 16 whatever degree they care to. 17 If the retailer has specific questions 18 about their location, typically that's when we're 19 directing them to some resources that they can access 20 either general information on or some local resources, 21 to have someone come out and look at their specific 22 situation. 23 COMMISSIONER SCHENCK: But for the 24 fairly rare instances we have, I assume it's that the 25 door is not readily opened by someone in a wheelchair 0051 1 or that there is not a scalloping in the sidewalk 2 where someone can get into the store. It's not that 3 we're having agents refuse to sell to people with 4 physical disabilities? 5 MR. ROGERS: No, sir. That's correct. 6 It's almost typically -- we're looking at issues with 7 parking, signage, general access to the building, curb 8 cuts, ramps and things like that with the door so that 9 folks can get up to the counter and either purchase a 10 lottery ticket or redeem a prize from a lottery 11 ticket. 12 COMMISSIONER SCHENCK: We can't sell by 13 mail or by Internet. But retailers can provide -- 14 come out to a car to sell to somebody, if that's a 15 requirement. Right? 16 MR. ROGERS: Yes. There are some 17 provisions for alternative accommodations for folks 18 that might not be able to get into a particular 19 location. 20 COMMISSIONER SCHENCK: And we explain 21 that to people if they have questions? 22 MR. ROGERS: Yes, sir. 23 COMMISSIONER SCHENCK: Okay. 24 CHAIRMAN WILLIAMSON: With being the 25 only non-attorney here, it's just been my 0052 1 observations, because of the ADA requirements, I think 2 a lot of the building codes within cities and counties 3 basically have taken care of a lot of the potential 4 problems that may have arisen in years in the past. 5 You know, sidewalks, even my little town had to redo 6 all their sidewalks. So this is -- to me it's just 7 more of a cleaning up for us to be in sync with 8 everything, rather than there is problem, because 9 there's really not. Only five complaints tells me 10 there's not, out of 16,000. 11 COMMISSIONER SCHENCK: Four real 12 complaints. 13 CHAIRMAN WILLIAMSON: Four, yes. So 14 anyway. So I guess we need a motion for this as well? 15 MS. KIPLIN: Yes. This is an action 16 item. It would be a motion to accept staff's 17 recommendation to propose these three rules, the 18 amendments to these three rules for publication in the 19 Texas Register to receive public comment. 20 CHAIRMAN WILLIAMSON: Do I hear a 21 motion? 22 COMMISSIONER SCHENCK: I move we adopt 23 staff's recommendation and publish all three rules -- 24 16 TAC 401.402; the same, 401.405; and the same, 25 401.407, all relating to ADA compliance. 0053 1 CHAIRMAN WILLIAMSON: Second? 2 COMMISSIONER KRAUSE: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes. 8 Thank you. 9 MS. RIENSTRA: I have the T-bar memos. 10 CHAIRMAN WILLIAMSON: Okay. Great. 11 AGENDA ITEM NOS. XIV AND XV 12 CHAIRMAN WILLIAMSON: Move on to 13 Items -- well, actually we'll take the next two items 14 together, Item XIV and Item XV. This is report, 15 discussion or action on the Powerball game and 16 agreement, and then consideration for a proposal for a 17 new rule relating to the Powerball on-line game. 18 MR. TIRLONI: Good morning, 19 Commissioners. For the record, my name is Robert 20 Tirloni. I am the Products Manager for the Texas 21 Lottery. 22 Commissioners, I'm going to start off 23 today with a presentation that will provide you the 24 history behind Texas joining the Mega Millions game, 25 discuss the multi-jurisdiction legislation that was 0054 1 passed in 2003, provide you with some history of the 2 MUSL group, which is the Multi-State lottery 3 Association -- that's the association that runs the 4 Powerball game -- give you some history about 5 Powerball and then give you a comparison of the Mega 6 Millions game and the Powerball game. 7 Ms. Pyka is here to provide a projected 8 revenue estimate for Powerball in Texas, and then 9 Mr. Wassdorf is here to talk about the proposed rule 10 and the associated legal agreements. 11 While we are here to talk about the 12 proposed Powerball rule in Texas, it's important to 13 note that our initiative to bring you this rule and to 14 hopefully in the future launch Powerball in Texas is 15 part of a much bigger national initiative, and that 16 initiative has been termed the cross-sell initiative 17 or the cross-selling initiative. 18 And that initiative is for the Mega 19 Millions states to all begin selling the Powerball 20 game and for the Powerball states to begin selling the 21 Mega Millions game. So I just wanted to give you that 22 overall, overarching picture of what's going on in the 23 industry with these two multi-state games. 24 So to get started, Mega Millions began 25 in 1996. At that time it was not called Mega 0055 1 Millions, it was called The Big Game. And it was 2 launched by six states that you see up there on the 3 screen: Georgia, Illinois, Mass, Maryland, Michigan 4 and Virginia. The game was only drawn once a week, on 5 Fridays, and it was a two-field or a bonus ball 6 matrix. 7 A couple of years later, in '98, a 8 second drawing was added. So the draw schedule was 9 Tuesdays and Fridays, just as it is today. About a 10 year later, the game had a matrix change. Again, it's 11 still at that point, a two-field matrix. 12 Another big state joins in May of '99; 13 new Jersey joined. And about a year later, Mega 14 Millions achieves at that time the largest advertised 15 jackpot in North America history, $363 million. 16 A major change takes place in the game 17 in May of '02. Two large states join the game, 18 New York and Ohio. And it's at that point that the 19 name of the game changes from The Big Game to Mega 20 Millions. They make a matrix change or a game change. 21 The matrix is now 5 of 52, one of 52, and that's to 22 accommodate the added population from New York and 23 Ohio. In September of '02, the state of Washington 24 joins. And a little over a year later, we join the 25 game, in December of '03. 0056 1 After we were in the game for about a 2 year and a half, California decides to join Mega 3 Millions and become the 12th state in the game. And 4 so a year and a half in, we go through a game change 5 or a matrix change, and the game changes to a 5 of 56, 6 1 of 46, and that's the same matrix that we're playing 7 on the Mega Millions game today. 8 So the legislation that allowed us to 9 join Mega Millions was passed during the 78th 10 Legislature. Again, that was in 2003. It was House 11 Bill 3459, and it authorized the Lottery Commission to 12 participate in the operation, marketing and promotion 13 of a multi-jurisdiction lottery game, or games, with 14 one or more states or even with a foreign country. 15 And, of course, we should note that the legislation 16 did allow us to -- or does allows us to participate in 17 more than one multi-state game. 18 And so in October of 2003, October 16th 19 to be specific, at a Lottery Commission meeting, the 20 Commissioners at that time adopted the Mega Millions 21 game rule, and they also at that same time authorized 22 the Executive Director to sign an agreement with the 23 10 party lotteries -- at that time they were only 10 24 in the game -- to sign an agreement with those party 25 lotteries, and that marked our official entry into the 0057 1 Mega Millions game. 2 And then we were able to start sales 3 actually less than two months after that. Right in 4 early December of 2003, we launched Mega Millions and 5 we were the only state to add a multiplier on to the 6 Mega Millions game. We refer to that as Megaplier, 7 and we're still the only Mega Millions state that 8 offers that add-on game feature. 9 So there's a lot of history about cross- 10 selling, and there's a lot of history related to Texas 11 being in more than one multi-state game. And it 12 actually dates back to the summer of 2003, when Texas 13 was taking the time to evaluate both the Mega Millions 14 and the Powerball game to decide which one we were 15 going to join. The Texas Lottery Commissioners 16 actually raised that idea at the time, of us joining 17 both games. 18 A couple of years later, in November of 19 '05, the Commissioners asked Gary Grief to continue to 20 explore that idea of Texas being in both games. And 21 so he sent a letter to the Mega Millions group to 22 continue to further that concept. 23 A month later Gary attended a Mega 24 Millions directors' meeting, continuing to try to 25 further that idea of Texas being in both Mega Millions 0058 1 and in Powerball, of course with the idea that being 2 in both games, two games that can produce very high 3 jackpots, would increase our sales and therefore our 4 revenue to the state and to the school fund. 5 In November of '08 at a Mega Millions 6 directors' meeting -- so this is much more recent, 7 just last year -- a meeting is held not to talk about 8 cross-selling but to actually talk about a new game, 9 the formation of a national game. And this would be a 10 higher price point game. Either two or $5.00 is what 11 was being discussed at the time. 12 Earlier this year, in February of '09, a 13 meeting is held between representatives of Mega 14 Millions and Powerball to discuss this national game. 15 Gary does represent Texas and Mega Millions at this 16 meeting. And the idea of cross-selling -- again, Mega 17 Millions starting to sell Powerball and Powerball 18 states starting to sell Mega Millions -- that idea is 19 discussed once again. 20 Towards this past summer, in June, there 21 seems to be a loss of momentum for the cross-selling 22 concept and for the national game concept. And so at 23 that point, Texas kind of steps out and we make a 24 request to the MUSL group and we submit a request to 25 join the Powerball game. Later that month, in June, 0059 1 MUSL does take a vote and our request to join 2 Powerball is denied at that time. 3 With a lot of work and a lot of effort 4 over the summer months, discussions continue for a 5 national game -- this is mainly led by the Mega 6 Millions group -- with the thought that any Powerball 7 states that are interested, they would be allowed to 8 participate in that game. And at that time, the 9 cross-selling concept is still alive and it is of 10 interest to states in both the Mega Millions group and 11 the Powerball group. 12 And then very recently, just about six 13 weeks ago, in the beginning of October an agreement is 14 finally reached between Mega Millions and MUSL, an 15 agreement in principle to begin the process of this 16 cross-selling initiative with that beginning in early 17 2010 for those jurisdictions that decide to do so and 18 are able to get any necessary rules or policies or 19 procedures in place in time to start in early 2010. 20 So we've talked about Mega Millions, 21 we've talked about the cross-selling initiative, the 22 history behind all of that. And we've referred to 23 MUSL, but I'll give you a brief history on MUSL and 24 Powerball. 25 MUSL was actually formed much earlier 0060 1 than the Mega Millions group was formed or The Big 2 Game group was formed. It was formed in September of 3 '87. Again, the original members are six states. 4 They're listed up there on the screen. About a year 5 later -- I'm sorry. Not even a full year. A few 6 months later, MUSL launches its first multi-state game 7 called Lotto America. 8 By January of '91, MUSL has grown to 16 9 states, all of which are selling Lotto America. And 10 about a little over a year later, Lotto America is 11 replaced by the Powerball game. And it's worth 12 noting, Powerball is the first two-drum or two-field 13 matrix ever introduced in the industry. And it was a 14 5 of 45, 1 of 45 game matrix. In November of '97, the 15 matrix was changed, and annuity period was changed 16 from 20 to 25 years, and the game added a cash value 17 option. 18 In March of '01, Powerplay was added. 19 That's a multiplier feature, and players can multiply 20 their non-jackpot prize winnings up to five times with 21 that feature. 22 In October of '02, Powerball had another 23 matrix change, and they added a Match 5 bonus feature. 24 I'm going to explain that on the next slide. 25 In August of '05, there was a matrix 0061 1 change. And at this time there are now 29 2 jurisdictions that are selling and participating in 3 the Powerball game. And then at the very beginning of 4 this calendar year, in January, Florida, one of the 5 last big states to decide on joining a multi-state 6 game, they choose Powerball. They become the 32nd 7 jurisdiction to begin selling at that time. And 8 again, a matrix change is made to accommodate their 9 introduction to the game. Powerball also makes a 10 change to the second tier prize level. When a player 11 wins the second tier prize and they've also elected to 12 play Powerplay, that prize automatically becomes a 13 million dollars. 14 And it's not on the screen, but 15 Arkansas, the newest state to launch a lottery, did 16 join Powerball shortly after their launch, and so they 17 are now the 33rd state in the Powerball game. 18 This next slide is a direct comparison 19 between Powerball and Mega Millions. We've talked 20 about the matrices for the game, for both games. You 21 see the number of jurisdictions. Powerball is 33 22 jurisdictions, as I just mentioned a moment ago. Mega 23 Millions is 12. 24 And as we look at this slide and we get 25 to the jurisdictions number, it's probably worth 0062 1 noting if by early 2010, this cross-selling is 2 initiated, there will be 45 states participating in 3 each game. And I think it's important to note that if 4 this proposed rule that you're going to consider for 5 publication today is eventually adopted in the future 6 and we are able to join Powerball, we'll basically be 7 one of 45 states or jurisdictions. 8 And so as we go through these next few 9 points or items on this slide, you'll note some 10 operational aspects of the games that are different 11 from our own Texas-based game, such as Lotto Texas and 12 Texas Two-Step, Cash 5. Those games are completely 13 under our control. With these games, being one of 45, 14 they each have their rules. And in order to 15 participate in the games, we have to follow some of 16 their rules. So you will see some operational aspects 17 of the games that are different. And if it were 18 totally under our control, we may do things 19 differently. But again, we are somewhat limited by 20 being a part of these larger groups. 21 The population for Powerball is 22 130 million. You see even though Mega Millions has 23 far fewer states, the population is quite a bit 24 bigger, 161 million, just based on the size of those 25 12 states: New York, California, Texas, Ohio, 0063 1 Illinois. 2 Starting jackpots are different. 3 Powerball starts at $20 million as opposed to 12. 4 Second tier prize, this is the level right below the 5 jackpot tier. On Powerball it's $200,000. On Mega 6 Millions it's a quarter of a million, $250,000. 7 As I mentioned, both games have 8 multiplier features, Powerplay going up to five times, 9 Megaplier going up to four. So those second tier 10 prizes in both games can become million dollar prizes. 11 The overall odds are pretty close. The 12 jackpot odds are a little longer for Powerball. If a 13 player chooses annuity payments or annual payments, 14 there is a difference. Mega Millions is 26 equal 15 payments. Powerball is 30 graduated payments, with 16 the first payment being less than the 30th payment. 17 They increment up as you move through that annual 18 payment schedule. 19 Draw days, Powerball is on Wednesdays 20 and Saturdays. That game is drawn in Orlando, 21 Florida. Mega Millions is Tuesdays and Fridays. The 22 drawing takes place in Atlanta, Georgia. 23 Guaranteed jackpots. Mega Millions 24 guarantees its advertised jackpot; Powerball does not. 25 So I'll give you an example. If Powerball were 0064 1 advertising a $150 million jackpot and after all the 2 sales were tallied for that drawing and the interest 3 factor was considered, if all of the -- if the sales 4 actually supported a jackpot of, let's say, 5 $148 million, Powerball would pay $148 million. They 6 would not pay the $150 million jackpot amount that 7 they were advertising. So that is a difference from 8 Mega Millions, and that is a difference from how we 9 operate Lotto Texas and Texas Two-Step for that 10 matter. 11 Mega Millions does not have a jackpot 12 management program, meaning if we get up to $370 13 million or $380 million, we could roll to whatever 14 sales would support -- 450, 470. Powerball does have 15 a jackpot management program. So when Powerball gets 16 up to a record jackpot amount, they then begin rolling 17 the jackpot in $25 million increments. And any 18 additional funds are put into that Match 5 bonus 19 category. I referred to that a few slides back. 20 And what happens is, those funds 21 continue to build in that Match 5 bonus category. And 22 then when a jackpot ticket is eventually sold, those 23 funds flow down to the second tier prize, increasing 24 that amount. 25 And just for the record, Powerball's 0065 1 highest advertised jackpot is $365 million, and Mega 2 Millions record advertised jackpot is $370 million. 3 MR. GRIEF: Robert, before we leave that 4 slide, any questions from the Commissioners? 5 COMMISSIONER SCHENCK: Yes, I have a 6 couple of questions. There are some different 7 procedures in place for these games, as I understand 8 it. I don't think perhaps either Commissioner was 9 here last time, Kathy, when you and I -- you had a 10 very detailed presentation to me and answered a lot of 11 questions about how we estimate a jackpot for Mega 12 Millions. It's a fairly complicated process, as I 13 recall, that goes on on Thursday mornings. And we do 14 not have weighted voting on that, where we are a large 15 state. And I think each state gets one vote on what 16 they want to advertise the jackpot to be. And I think 17 we guarantee the jackpot, if I'm remembering 18 correctly. And we've been very, very conservative in 19 Texas about not advertising a jackpot that we don't 20 think is actually going to result in an amount of 21 play. 22 And I wonder how that is different with 23 respect to Powerball and what position we would have 24 with respect to guaranteeing jackpots or our ability 25 to control what the advertised jackpot would be so 0066 1 that people might face the disappointment of thinking 2 that advertising was $365 million, let's say, and it 3 ended up being 355. 4 MS. PYKA: That's a very good summary. 5 The jackpot process is certainly different. With 6 Powerball, we will be one of many states. And it's 7 not actually a process in which jackpot estimation, as 8 they currently do it, is handled by the individual 9 states. The MUSL organization handles their jackpot 10 estimation, unlike the Mega Millions process in which 11 we have a phone call on Tuesdays and Fridays in which 12 each state projects their actual sales. 13 And then the directors come together and 14 vote on what the roll jackpot will be if there should 15 not be a winner that night. In that case, as long as 16 there is at least four votes, the majority actually 17 set the jackpot on Mega Millions, very different than 18 the current process in play with Powerball. 19 COMMISSIONER SCHENCK: In Powerball it's 20 33 jurisdictions. I mean, I don't have them at my 21 fingertip command, but 33, adding up to $130 million, 22 or not to be derisive, but are smaller jurisdictions 23 by and large. 24 And the MUSL group, can you explain 25 exactly who that is. Is it a representative from each 0067 1 of those 33 jurisdictions or is it a much smaller 2 group of professionals that are administering the game 3 that just come to a determination that we will be 4 stuck with as to what they say the jackpot should be? 5 MS. PYKA: The MUSL group, as it stands, 6 is a separate organization from those 33 jurisdictions 7 as individual states. There's actually an 8 administrative staff that handles the oversight of the 9 game, and they actually handle much of the 10 administration, including jackpot estimation and 11 jackpot payment today. 12 COMMISSIONER SCHENCK: Where are they 13 physically located? 14 MR. GRIEF: Iowa. 15 MR. TIRLONI: Iowa. 16 MS. PYKA: Thank you. 17 COMMISSIONER SCHENCK: Iowa. And Iowa 18 is a participant? 19 MR. TIRLONI: Yes, Iowa is a participant 20 in Powerball. 21 COMMISSIONER SCHENCK: Who is 22 responsible for hiring the MUSL people? Is it the 23 Iowa Lottery or is it the -- 24 MR. GRIEF: No, sir. As I understand 25 it, each of the state lottery directors serve, if you 0068 1 will, as a board of directors, and they hire the MUSL 2 staff. And the MUSL organization is funded, as I 3 understand it, out of interest earned from the various 4 investment products that they oversee, for not just 5 Powerball but a multitude of multi-state lottery games 6 that they manage for the MUSL members. 7 COMMISSIONER SCHENCK: And would we have 8 a voice -- I assume Florida is a substantial voice in 9 the running of MUSL. We would, if we joined in this, 10 be equally large. We would have a voice, then, in 11 MUSL's hiring and staffing decisions? 12 MR. GRIEF: No, sir, we would not. The 13 way this is being structured is, we are not joining 14 MUSL, we are not going to become a member of MUSL. 15 COMMISSIONER SCHENCK: So we will just 16 be playing underneath them, and we will not have a 17 direct say on exactly how MUSL makes these decisions 18 or if we're discontent with, for instance, their prize 19 estimation procedures, we're just going to have to 20 make a decision to pull out or not? 21 MR. GRIEF: Correct. 22 COMMISSIONER KRAUSE: Can we pull out 23 easily if we want to? 24 MR. GRIEF: I believe in the MUSL 25 procedures, there is an opt-out clause. 0069 1 And do you remember how many days it is, 2 Kim? I can't recall. 3 MR. WASSDORF: It's six-month notice. 4 COMMISSIONER KRAUSE: 180 days. 5 MR. WASSDORF: There is no notice 6 required if there is a change in state law, which 7 would require us to pull out. But absent that, it's a 8 six-month notice. 9 COMMISSIONER SCHENCK: And there is no 10 limit on our discretion as to how we would pull out? 11 If we decided we want to go, we can go? There's not a 12 liquidated damage provision or anything else like 13 that? 14 MR. WASSDORF: That's correct. 15 COMMISSIONER SCHENCK: It looks to me 16 like these two games weren't built to run together. I 17 mean, we have drawings on Tuesday and Wednesday. And 18 if you were designing these things from scratch, 19 trying to run them both at the same time, I assume you 20 wouldn't be running a Tuesday, Wednesday, Friday, 21 Saturday prize. You might move one of those drawings 22 to Monday, for instance. 23 MR. GRIEF: Probably so. What we see, 24 Commissioner, is this is one of the steps that we're 25 taking to get to a national game. This is the first 0070 1 intermediate step, if you will. 2 COMMISSIONER SCHENCK: I see that 3 moving. And I assume the thought is that other Mega 4 Million states will follow suit and that eventually it 5 will be some sort of parley or treaty on how to 6 combine these things, which is not yet -- this is a 7 very nasent step towards whatever national game we 8 would be moving toward. 9 But I wonder -- I mean, I'm thinking out 10 loud here. I mean, the closer you get to a national 11 game, it becomes a lot easier for the United States 12 government to have a game in competition with the 13 states, which I think no one would want to see. 14 That's a political problem, I suppose. 15 And again, I'm thinking here also, this 16 is more art than science in terms of what the revenues 17 are going to look like, because there's going to be 18 people who will get excited by a large Powerball 19 jackpot who will, instead of playing Mega Millions, 20 play Powerball, or instead of Lotto Texas, play Mega 21 Millions or Powerball. 22 So we're just going to have to see what 23 type of cannibalization occurs with this increased mix 24 of game choices for people who are inclined to play 25 the lottery. You can't tell us, as we sit here today, 0071 1 what net increase of sales we'll see. And you can't 2 assume us, I assume, that increased revenues from 3 Powerball won't be coming at least in some measure 4 from decreased revenues and some other existing game? 5 MR. GRIEF: I think you've said that 6 very well. We've put together a revenue estimate of 7 $35 million for every full year that this is 8 implemented, and we feel comfortable in that revenue 9 estimate. That's based on -- 10 COMMISSIONER SCHENCK: That's a net, 11 Gary? 12 MR. GRIEF: That's a net gain. That's 13 given cannibalization of other games. However, I 14 think you hit the nail right on the head. This is 15 something that's never been done before. And until we 16 see how this actually works and plays out, I don't 17 think any expert in the industry, quite frankly, can 18 give you a solid bottom number, and particularly when 19 you're talking about 45 states and how it impacts 20 everyone from the State of Rhode Island to the State 21 of California. 22 So we are going to be closely monitoring 23 this. There are several things to think about here: 24 Do we need to make a matrix change on either one of 25 these games? That's one of the first things that come 0072 1 to mind. Do we need to change the starting jackpot 2 amounts higher or lower? Now, I could go on and on. 3 But the decision that we've come to as a group with 4 both MUSL and Mega Millions weighing is, let's not 5 make any changes right now. Let's allow each side, if 6 you will, to play each other's games, gather some data 7 over a period of months and then see where we are at 8 that time. 9 COMMISSIONER SCHENCK: I understand it's 10 an experiment. It's interesting. 11 COMMISSIONER KRAUSE: Gary, how do we 12 get started on this, being interested in Powerball, 13 which looks like it's not quite as dominant as Mega 14 Millions? 15 MR. GRIEF: When we were looking to join 16 either Powerball or Mega Millions back in 2003, when 17 the Legislature passed a law allowing us to join 18 multi-state games, we invited both groups down to 19 pitch their game, if you will. And they're both very 20 compelling games, and they both generate high 21 jackpots. You can see the top jackpot for each is 22 within $5 million of each other. One is at 365 and 23 one is at 370. 24 For us what it came down to was, a Lotto 25 Texas game is played on Wednesdays and Saturdays. And 0073 1 we thought that by bringing in Powerball, that would 2 compete on the very same nights that we have Lotto 3 Texas, and Lotto Texas was very successful at the 4 time, so we chose Mega Millions. 5 But while we did choose Mega Millions, 6 there was interest -- and I'll have to tell you, I was 7 right there with our Commissioners on this -- we think 8 we can make the most money by joining both. And so we 9 explored that at the time. And the Mega Millions 10 states at that time were not willing to allow Texas to 11 join if, indeed, we wanted to join Powerball as well. 12 Powerball, on the other hand, would 13 allow us to join their game and join Mega Millions. 14 But at the end of the day when all things were 15 considered, we decided Mega Millions was the best way 16 to go at the time. 17 COMMISSIONER SCHENCK: Is New York or 18 California or Massachusetts likely to move into both 19 camps? 20 MR. GRIEF: All states are planning to 21 move into both camps, with the exception of Louisiana. 22 As indicated, they will not be joining Mega Millions. 23 They have a statutory limit on the number of on-line 24 games they can offer, is my understanding, and they've 25 reached that limit. 0074 1 And California is on the fence. They 2 have some prize pay-out issues and some other 3 statutory issues that come into play. Other than 4 those two, all other states have been confirmed that 5 they'll be cross-selling. 6 COMMISSIONER SCHENCK: Well, I think 7 that's an important point of the pressure, isn't it? 8 I mean . . . 9 CHAIRMAN WILLIAMSON: I have a question. 10 Does Powerball have a cash payout option rather than 11 the -- 12 MS. PYKA: They certainly do. At the 13 time of ticket purchase, the player in Texas would 14 have the option under the proposed rules to either 15 select the cash payment option or the annuity option. 16 And at each jackpot estimation, the jackpot that's 17 advertised would include the annuity jackpot amount 18 and then the cash value amount would be a separate 19 amount. 20 COMMISSIONER SCHENCK: So, Gary, we have 21 now how many states playing either Powerball or Mega 22 Millions? Right now there is an overlap, so we're 23 talking 45 states? 24 MR. GRIEF: That's correct. That's 25 including the District of Columbia and the Virgin 0075 1 Islands for Powerball. 2 COMMISSIONER SCHENCK: Not Guam? 3 MR. GRIEF: Not Guam. 4 COMMISSIONER SCHENCK: I wonder how many 5 of those states have a state income tax? 6 MR. GRIEF: How many have a state income 7 tax? Commissioner, I'm not -- 8 COMMISSIONER SCHENCK: All but us, I'm 9 thinking, us and Florida. 10 MR. GRIEF: I'm not sure. 11 CHAIRMAN WILLIAMSON: There's five 12 states that only have, I think -- 13 COMMISSIONER SCHENCK: We ought to be 14 able to advertise a larger jackpot in Texas. It's 15 effectively larger because there is a state tax 16 everywhere else. 17 CHAIRMAN WILLIAMSON: For me, this is 18 just adding another game to the mix. And since it's 19 so specifically spelled out in the statutes that we 20 are allowed to do this, knowing the evolution towards 21 a national game, I think we would be remiss in at 22 least not stepping out there and trying it, because 23 the way I see it, I'm not sure we're going to lose 24 money on this. And if we see it doesn't work, we can 25 certainly pull back out. 0076 1 MR. TIRLONI: Commissioners, Kathy is 2 going to give a brief overview of the -- Gary alluded 3 to the revenue estimate. We're going to have Kathy 4 give you a summary of her projections if you would 5 like. 6 MS. PYKA: Well, we touched on it, 7 but -- 8 MR. GRIEF: I'm sorry to interrupt you, 9 Kathy. 10 Before we do that, Robert, could you go 11 back to that slide one more time, please. 12 MR. TIRLONI: Sure. 13 MR. GRIEF: I want to highlight 14 something that Robert touched on in his presentation, 15 but I want to make sure we have a good, clear record 16 on this, and that is the guaranteeing of jackpots. 17 That does not occur in the Powerball game. Prior to 18 Chairman Williamson's time and Commissioner Krause's 19 time on the Commission, there was a tremendous amount 20 of controversy about the guaranteeing of jackpots here 21 in Texas. 22 And our Commission passed rules where we 23 have now Texas Two-Step, Lotto Texas and then the game 24 we already participate in a multi-jurisdiction 25 setting, Mega Millions, all with guaranteed jackpot 0077 1 amounts. This agency has taken criticism from a 2 number of different fronts over the years about 3 jackpot management and the fact that at some point in 4 time, some of those jackpots weren't guaranteed. 5 This jackpot will not be guaranteed in 6 Powerball. It could be advertised at $100 million, 7 and when the sales and interest rates all come into 8 play at the end of the day, it could only pay 9 $98 million, for example. I've seen data on this, and 10 it doesn't occur very frequently, but it does occur 11 from time to time. 12 So we as a staff are going to have to do 13 a very good job of making sure that that information 14 is out there for the public to see and understand and 15 know that when they want to play Powerball, that 16 that's the situation. If they had rather play a game 17 that guarantees the jackpot amounts, then we have 18 other games that they can certainly participate in. 19 But again, the agreement is, we will 20 play Powerball as the Powerball game is designed. The 21 Powerball states who are doing Mega Millions are going 22 to play Mega Millions as the Mega Millions game is 23 designed. 24 COMMISSIONER SCHENCK: Gary, is there 25 national advising right now by Powerball in media 0078 1 outlets that will come into Texas that we won't be 2 able to control? 3 MR. GRIEF: No, sir, there is not. 4 COMMISSIONER SCHENCK: When we advertise 5 a jackpot for Powerball, assuming we're doing our own 6 advertising through TracyLocke or someone else, we can 7 put "Estimated" in as large a font as we want? 8 MR. GRIEF: Certainly. And that would 9 be our plan. 10 COMMISSIONER SCHENCK: And I recall this 11 debate before in our games. And I think my position 12 was others was very clear, that if we're telling 13 people we think it's going to be $4 million or 14 $8 million, we don't change that. I mean, I had 15 rather that we eat it than we mislead players into 16 thinking that there's going to be something paid that 17 we're not going to pay. 18 But if we're not in control of this, if 19 MUSL is running the jackpot estimation, I don't think 20 we have a choice. But I do think we have to be 21 careful about how we communicate what the jackpot 22 would be and will have to say "Estimated" very, very 23 clearly. 24 MR. GRIEF: Yes, sir. 25 MR. TIRLONI: And, Commissioner, we 0079 1 currently do that on all our games, and we've already 2 started talking about how we would communicate and 3 convey that information on our outdoor boards, via our 4 website and any other avenues where we communicate 5 that -- on traffic reads on the radio during commuting 6 times. So we've already started thinking about how we 7 would convey that. 8 COMMISSIONER SCHENCK: How often, 9 Gary -- when you say it's rare, are you talking 10 five percent of the time or less? 11 MR. GRIEF: The spreadsheet that I 12 looked at, I want to say it covered three or four 13 years, and there were three or four instances. So it 14 seemed to occur about once a year. 15 COMMISSIONER SCHENCK: Out of 104 a 16 year? 17 MR. GRIEF: Correct. 18 COMMISSIONER SCHENCK: And how far off 19 would they be, two percent or less? 20 MR. GRIEF: Less. 21 COMMISSIONER SCHENCK: Still, my 22 preference would be, if it were our advertising, that 23 we would pay what we say it's going to be. But it's 24 just a risk we assume by joining this game and not 25 controlling the explanation process. 0080 1 CHAIRMAN WILLIAMSON: Right. And there 2 again, I think it would be foolish for us not to 3 participate -- 4 COMMISSIONER SCHENCK: Agreed. 5 CHAIRMAN WILLIAMSON: -- because of the 6 size of our state, because generally if this is headed 7 to a national game, political aspects aside, I think 8 we certainly want to be at the table with everybody 9 else. If this isn't going to work, that will be 10 pretty evident I think in a year or two as this 11 evolves, or however it does. 12 COMMISSIONER SCHENCK: I think we'll 13 have to live with the modest disappointment of someone 14 thinking they were getting $365 million pre-tax 15 dollars, getting $363 million pre-tax dollars. I 16 think one way or another, we'll be able to get through 17 it. 18 COMMISSIONER KRAUSE: Sounds like a 19 rounding error. 20 CHAIRMAN WILLIAMSON: All right. Kathy, 21 go ahead. 22 MS. PYKA: Again for the record, Kathy 23 Pyka, Controller with the Commission. 24 Commissioners, we estimate that adding 25 Powerball to our product mix could bring an additional 0081 1 $35.5 million in net revenue for each full fiscal year 2 of sales. This represents $223.7 million in 3 additional sales, again for a full fiscal year. This 4 projection, it seems that Powerball will cannibalize 5 sales of the existing jackpot games of Texas, 6 including Lotto Texas, Cash 5, Texas Two-Step and Mega 7 Millions, due to higher jackpots and competing draw 8 days. It is assumed that instant ticket sales along 9 with those on-line games not affected by -- that will 10 not be affected by the projected cannibalization, 11 including Pick 3 and Daily 4, will remain flat over 12 time. 13 I would be happy to answer any questions 14 that you might have about the revenue estimate. 15 CHAIRMAN WILLIAMSON: Commissioners? 16 MS. PYKA: Thank you. 17 CHAIRMAN WILLIAMSON: Thank you. 18 MR. TIRLONI: Commissioners, I have a 19 proposed schedule of events to quickly go through with 20 you. The national launch date for the cross-selling 21 initiative is January 31st for start of sales. So we 22 have the proposed rule for your consideration today, 23 on the 17th. If you approve that publication in the 24 Register, it would publish on December 4th. 25 We would have a public comment hearing 0082 1 on December 14th. As Sandy, I believe, mentioned 2 earlier, this auditorium is going to be under 3 construction or renovation, and so that public comment 4 hearing would be at 1:00 p.m. at the Hobby Building. 5 And all of that information is noted in the preamble 6 of the proposed rule. The comment period would end on 7 January 3rd, and the rule would be ripe for your 8 consideration on Monday, January 4th. 9 If you-all chose to adopt the rule by 10 January 7th, we would be able to then start Powerball 11 sales on Sunday, January 31st, and then the first 12 drawing that we would participate in would be a few 13 days later, on Wednesday, February 3rd. 14 I should also note, because we are not 15 allowed to spend any money on a game until a rule is 16 actually adopted by the Commission. So, in other 17 words, we can't spend any ad dollars to market or 18 advertise this game until you actually adopt the rule. 19 If and when the game launches on 20 January 31st, there would not be a full-blown 21 marketing or advertising campaign to support that 22 launch. If you do adopt, we would get that process 23 started and put the wheels in motion. And we believe 24 we could have a full-blown campaign probably by late 25 March or early April, and that would be the campaign, 0083 1 then, that would support the introduction of the game 2 in the state. 3 CHAIRMAN WILLIAMSON: Thank you. 4 MR. GRIEF: I'll add to that, that we 5 are, however, exploring with our colleagues around the 6 country to see if there might be any type of group 7 marketing effort or announcement that could be made on 8 a national scale of the cross-selling initiative. Of 9 course, we have to wait to spend any money in that 10 regard until and if the Commission might choose to 11 adopt the rule. 12 COMMISSIONER SCHENCK: Are any of our 13 neighboring states about to go into both games at the 14 same time? You said Louisiana is barred. Arkansas 15 just started a lottery. What about Oklahoma and 16 New Mexico? 17 MR. GRIEF: Oklahoma, Arkansas and 18 New Mexico are all going to be on board with the 19 cross-selling. 20 COMMISSIONER SCHENCK: Okay. Will any 21 of them be selling both tickets before we can get our 22 advertising up, according to this -- 23 MR. GRIEF: Before we get our March or 24 April advertising up? 25 COMMISSIONER SCHENCK: Yes. 0084 1 MR. GRIEF: The chances are very likely 2 that they will. 3 COMMISSIONER SCHENCK: Kim, is there any 4 way we can shorten the notice and comment process? 5 MS. KIPLIN: No. There is a provision 6 in the Administrative Procedure Act that requires 30 7 days to pass from the date of publication in the 8 Register until the rulemaking is ripe for 9 consideration for adoption. 10 There is a minimum 20-day effective 11 period from the date the rule, once adopted, is filed 12 in the Register. There is a provision in the 13 Administrative Procedure Act that does allow for an 14 agency, in the period between adoption and effective, 15 when it becomes effective, to begin taking 16 administrative action. And in my view, taking 17 administrative action is spending money to be able to 18 get that rule implemented. 19 COMMISSIONER SCHENCK: It seems that way 20 to me. So that would put us back at least 20 days? 21 MS. KIPLIN: Yes. And that would be 22 spending money, signing contracts. 23 COMMISSIONER SCHENCK: I have another 24 question. Under the GTECH contract, there will be 25 more to administer, there is another game to be run, 0085 1 another point of sale. I'm assuming that there is not 2 an increase of compensation requirement to GTECH, 3 other than the increased percentage revenues that 4 they're going to be entitled to under the existing 5 contract. Is that what we're saying? 6 MR. GRIEF: That's correct. They would 7 still get 2.6999 percent of sales. 8 COMMISSIONER SCHENCK: Okay. 9 CHAIRMAN WILLIAMSON: Any other 10 questions? 11 COMMISSIONER KRAUSE: No, ma'am. 12 CHAIRMAN WILLIAMSON: All right. Thank 13 you. 14 Pete, I'm going to just say, we've got 15 to take a very short break. It's 10:35. We're going 16 to take an extremely short break. We will start back 17 up at 10:45 and we'll finish this up. 18 MR. WASSDORF: Okay. 19 CHAIRMAN WILLIAMSON: Okay? 20 (Recess: 10:35 a.m. to 10:58 a.m.) 21 CHAIRMAN WILLIAMSON: We are back. It 22 is 10:58. So we'll continue on with Item No. XV, 23 consideration and possible discussion or action, 24 including proposal, on new Rule 401.317 relating to 25 Powerball on-line game rule. 0086 1 So, Pete, you're on. 2 MR. WASSDORF: Good morning, 3 Commissioners. For the record, my name is Pete 4 Wassdorf. I'm an Assistant General Counsel in the 5 Legal Services Division. We have two items to discuss 6 with you today. And you really have already discussed 7 them fairly completely, but I'll hit the highlights 8 and try not to repeat things. 9 The first is to kind of give you an 10 update on the reciprocal game agreement. As you know, 11 the most pertinent thing about that agreement is that 12 it's not fully negotiated yet. The agreement is 13 between the Mega Millions states and MUSL, the 14 association that was formed by the 33 jurisdictions 15 that run Powerball. Currently it's anticipated that 16 all of the Mega Millions states will execute the same 17 contract, probably in multiple counterparts. 18 I believe that Texas has substantially 19 addressed the main areas of concern that we had with 20 the agreement and that we're waiting now for MUSL and 21 the other states to resolve their differences, and we 22 expect to have a finalized contract shortly. And as 23 soon as we have one, we will be forwarding it to you 24 and presenting it at the next Commission meeting for 25 you to authorize that to be executed on behalf of the 0087 1 state, if you decide to propose these rules and go 2 forward with this plan. 3 If you want any detailed information 4 about that -- because there's so many different 5 jurisdictions that were involved in it, the parties 6 that were doing the negotiation requested that there 7 be a single point of contact, and Mr. Grief was the 8 single point of contact for our agency. And so should 9 you have any detailed questions, he would be able to 10 help you with respect to that. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Do you want to add anything, Gary, 13 before we have questions? 14 MR. GRIEF: Just hoping you don't have 15 any questions. 16 CHAIRMAN WILLIAMSON: Well, now, I know 17 Commissioner Schenck will have at least one. 18 COMMISSIONER SCHENCK: I see a typo. 19 (Laughter) 20 On Page 16, Line 12, "multiple 21 claimants," space, period. There is an extra space 22 between the "claimants" and the period. 23 CHAIRMAN WILLIAMSON: Thank you. 24 COMMISSIONER SCHENCK: I have no further 25 questions. Thank you. 0088 1 MR. WASSDORF: The second item I'll talk 2 about, then, are the proposed rules that are here for 3 your consideration today. I would like to reiterate a 4 couple of things, and one of them is that the 5 constitution was amended to authorize the Legislature 6 to provide by general law for the state to operate 7 lotteries and to authorize the state to enter into 8 contracts with one or more legal entities that would 9 operate lotteries on behalf of a state. 10 Pursuant to that authorization, the 11 Legislature passed Section 466.451 of the Government 12 Code, of the Texas Lottery statute, which authorized 13 the Commission to enter into a written agreement with 14 the appropriate officials of one or more states or 15 other jurisdictions, including foreign countries, to 16 participate in the operation, marketing and promotion 17 of a multi-jurisdictional lottery game or games and 18 that it authorized the Commission to adopt rules 19 relating to the multi-jurisdictional lottery games. 20 It provided for the disposition of the 21 revenue from such multi-jurisdictional lottery games 22 and authorized the Commission to share in the payment 23 of costs associated with participating in multi- 24 jurisdictional lottery games. 25 The rules before you today detail how 0089 1 the play of the game is done, and these rules provide 2 that it's in accordance with the reciprocal game 3 agreement that we're currently negotiating and with 4 the MUSL association rules and the Powerball group 5 rules. Within the MUSL association, they have product 6 groups for different types of games that they have. 7 We're not anticipating offering any other MUSL games 8 other than Powerball, so we're just dealing with the 9 Powerball group rules, and those group rules contain 10 the Powerball game rules. 11 And we have adapted those game rules to 12 Texas, and those are the ones that you have before you 13 for your consideration for proposal and publication in 14 the Texas Register. Essentially those rules have 15 their own definitions: The game description, the 16 prize pool description, the percentage allocation of 17 prize pools to prizes, a description of the Match 5 18 bonus game -- which is part of their jackpot control 19 mechanism, provides the odds of winning -- a 20 description of how games will be paid and a 21 description of Powerplay, which is Powerball's 22 multiplier feature. 23 Other than that, I think that most other 24 aspects of our relationship with the MUSL group will 25 be controlled by the MUSL association rules and the 0090 1 MUSL Powerball group rules. The staff believes that 2 these rules are adequate for proposing operating this 3 game and recommend them for your consideration and 4 proposal and publication in the Register. 5 CHAIRMAN WILLIAMSON: Thank you. 6 Any other further questions, 7 Commissioners? 8 Is there a motion to adopt this? 9 COMMISSIONER SCHENCK: I move that we 10 publish this proposed rule for comment in the Texas 11 Register. 12 COMMISSIONER KRAUSE: Second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER SCHENCK: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Motion passes. 18 Thank you. 19 MS. KIPLIN: I think just to put on the 20 record, to be very clear, there will be a rulemaking 21 comment hearing on this rulemaking. It will be 22 off-site. It will be at 333 Guadalupe. Mr. Tirloni 23 referenced the building. It's the Hobby State 24 Building. It will be December 14th, and it will be at 25 1 p.m., Room 102, Tower 3. 0091 1 CHAIRMAN WILLIAMSON: And I assume this 2 will also be on our website if anybody goes that far 3 to research this? 4 MS. KIPLIN: Yes. 5 MR. GRIEF: Yes, ma'am, it will. 6 CHAIRMAN WILLIAMSON: Okay. All right. 7 Thank you. 8 MR. WASSDORF: I have a T-bar memo for 9 your signatures. 10 AGENDA ITEM NO. XVI 11 CHAIRMAN WILLIAMSON: We are on to Item 12 No. XVI, report, discussion and action on lottery 13 sales and revenue, game performance, new game 14 opportunities, advertising, marketing research and 15 trends. 16 Ms. Pyka and Mr. Tirloni. 17 MS. PYKA: Good morning, Commissioners. 18 For the record, my name is Kathy Pyka, Controller for 19 the agency. And to my right is Robert Tirloni, our 20 Products Manager. 21 Commissioners, I wanted to note that we 22 have revised our sales presentation this month, in an 23 attempt to condense our sales data. In a more 24 summarized version, we're using three slides this 25 month. In the future we'll provide you a quarterly 0092 1 update on instant ticket sales by price point, but we 2 wanted to try to capture the essence of where we are 3 in sales in a more summarized fashion for you. 4 So our first slide that we have for you 5 reflects our comparative sales through the week ending 6 November 7th of 2009. This is sales through a 10-week 7 period. And the Fiscal Year 2010 sales are noted at 8 the bottom of this slide, amounting to $690.2 million, 9 an increase of $57.1 million over the same period in 10 Fiscal Year 2009. 11 Our instant ticket sales are reflected 12 on the blue bars. Fiscal Year 2010 are at 13 $502.4 million, representing a $16.2 million increase 14 over Fiscal Year 2009 sales. And our on-line sales 15 are reflected on the red bars, Fiscal Year 2010 at 16 $187.9 million, a $41 million gain over the same 17 period in Fiscal Year 2009. 18 So Robert is now going to discuss sales 19 by game for you. 20 MR. TIRLONI: For the record, once 21 again, my name is Robert Tirloni. I'm the Products 22 Manager for the Commission. 23 Commissioners, this next slide shows 24 lottery fiscal year to date sales, comparing 2010 to 25 2009, and this is through the week ending Saturday, 0093 1 November 7th. We have our jackpot games grouped at 2 the top of this slide in white, our daily games in the 3 middle in green, and then we have our instants at the 4 bottom. 5 You can see our jackpot games are doing 6 well through this week ending date. We did have a 7 $76 million jackpot in October on Lotto Texas. And at 8 about the same time, we had Mega Millions climb up to 9 $200 million in October. So as you can see at the 10 top, all of those games -- Lotto, Mega and Megaplier 11 are all up. 12 Jackpot games as a whole are up over 13 $40 million. Our daily games are up slightly year- 14 over-year, and our instant games are up $60 million, 15 as Kathy just mentioned. And once again, total for 16 Fiscal 2010 versus Fiscal 2009, our sales are up over 17 $57 million. 18 CHAIRMAN WILLIAMSON: Let's go back to 19 that slide for a minute. You have for the Year 2009, 20 for the Year 2010. So we're how many months into Year 21 2010? 22 MS. PYKA: This is 10 weeks. It's about 23 two and a half months. 24 CHAIRMAN WILLIAMSON: Okay. So is that 25 the same time period for the 2009 numbers, about 10 0094 1 weeks? 2 MS. PYKA: It is about 10 weeks. But 3 because of the days difference on week ending, there's 4 about a two-day difference between the two. 5 CHAIRMAN WILLIAMSON: So which -- 6 MS. PYKA: And we'll talk about that on 7 the next slide. 8 COMMISSIONER SCHENCK: One of those 9 years was hurricane-free and the other is not. 10 CHAIRMAN WILLIAMSON: Right. 11 MS. PYKA: Right. 12 CHAIRMAN WILLIAMSON: I guess what I'm 13 saying, this is a little bit -- when you look at this, 14 you go, "Wow!" But really it's because we got hit so 15 hard with the hurricane in 2009 in that period of 16 time. 17 MS. PYKA: Correct. 18 COMMISSIONER SCHENCK: That's correct. 19 CHAIRMAN WILLIAMSON: And that is how 20 much we have come back for that 10-week or so that 21 10-week period. Okay. 22 MS. PYKA: And we prepared the next 23 slide to hopefully pay focus to -- we recognize that 24 Fiscal Year 2009 is understated because of Hurricane 25 Ike that occurred in September. So this next slide 0095 1 gives you additional sales data in looking at sales on 2 a cumulative average daily sales basis. So when you 3 look at Fiscal Year 2008, we've added another column 4 so that we can compare Fiscal Year 2010 to Fiscal Year 5 2008 and look at what our average daily sales for 6 those two fiscal years and hopefully have kind of that 7 apples-to-apples comparison without Hurricane Ike 8 included. 9 So at this point in time in Fiscal Year 10 2008, we had 71 days of sales through November the 11 10th, which represented an average daily sales amount 12 of $9.7 million. Again, we know Fiscal Year 2009 is 13 down because of Hurricane Ike. We were at just under 14 $9.2 million in Fiscal Year 2009. 15 And I wanted to highlight, when we look 16 at Fiscal Year 2010, we are still up. We're at 17 $10.15 million as a daily average, which is definitely 18 higher than Fiscal Year 2008 sales. So we were 19 hopeful that this slide might help you see where we 20 are in comparison to a more normal year, such as 21 Fiscal Year 2008. 22 So with that, that concludes our sales 23 presentation this morning. We would be happy to 24 answer any questions. 25 CHAIRMAN WILLIAMSON: Commissioners, do 0096 1 you have any questions? 2 MR. TIRLONI: Commissioners, I do have 3 one thing to let you know about. 4 Commissioner Schenck, this was an issue 5 that you brought up a couple of months ago when we 6 were talking about terminal-printed instant game, when 7 we were talking about that game concept. We talked 8 about knowing when a ticket was printed from the 9 terminal. 10 And so we have worked with GTECH. A 11 software release was put in place Sunday night into 12 Monday. And so as of yesterday morning, every on-line 13 game ticket that prints from the system is date- and 14 time-stamped at the top. And so we wanted to let you 15 know we thought that was a very good idea, and we have 16 implemented that across the entire on-line product 17 category. 18 CHAIRMAN WILLIAMSON: Good. 19 COMMISSIONER SCHENCK: Thank you. 20 CHAIRMAN WILLIAMSON: Thank you, GTECH. 21 COMMISSIONER SCHENCK: Do I understand 22 correctly, are we looking at rolling out more Check-A- 23 Ticket terminals as well? 24 MR. TIRLONI: Yes. I believe that's 25 going to be discussed under a later agenda item. But, 0097 1 yes, that is correct. There are additional Check-A- 2 Tickets that are going to be deployed. 3 COMMISSIONER SCHENCK: That's on the 4 physical printed on-line ticket. We also can tell 5 where the ticket was sold. Correct? 6 MR. TIRLONI: You can't -- yes -- well, 7 every on-line ticket that is sold has the retailer 8 number. So, yes, you can tell exactly where that 9 on-line ticket was sold. 10 COMMISSIONER SCHENCK: Where and what 11 day, what time? 12 MR. TIRLONI: Yes. We've always been 13 able to tell where. But now the player can actually 14 see a ticket that prints and know that it had just 15 been generated from the terminal while they were 16 standing there, yes. 17 CHAIRMAN WILLIAMSON: Thank you. 18 COMMISSIONER KRAUSE: You know, now that 19 we've got '08 in front of us, to try and put this in 20 perspective, you know, I look at '08 and '09. And in 21 spite of Ike, I mean, those two look a lot similar. 22 And '10 is head and shoulders above both of those. 23 MS. PYKA: That is correct. As we look 24 at '10, Robert pointed out on the jackpot games 25 earlier, we had two very high jackpot rolls for both 0098 1 Lotto Texas and Mega Millions this year. And so when 2 we look at the daily average by day for the on-line 3 side, we're at $1.67 million as a daily average in 4 '10, compared to just under $1.2 million in Fiscal 5 Year 2008. So we've had a great start of the fiscal 6 year. 7 COMMISSIONER KRAUSE: Big jackpots help 8 out with that. 9 MS. PYKA: Without a doubt. And then 10 you can see on the instant side, Fiscal Year 2008 and 11 Fiscal Year 2009 are fairly close to one another, so 12 it's definitely the on line-side reflecting that gain. 13 COMMISSIONER SCHENCK: Have we stopped 14 advertising the Daily 4-Sum It Up feature or is it 15 just on life support? 16 MR. TIRLONI: Daily 4-Sum It Up, we 17 don't have an advertising campaign in market right now 18 for any of the daily games. We're running a promotion 19 right now with Pick 3, but we don't have an 20 advertising campaign. 21 MS. PYKA: Daily 4 as a game by itself, 22 though, has certainly fared -- 23 COMMISSIONER SCHENCK: That's reflecting 24 even more poorly on the Sum It Up feature, because 25 people are playing the game but they're deciding 0099 1 consciously or apparently at one-third the rate of 2 play Sum It Up feature, even though they're playing 3 the game about 35 percent more often? 4 MR. TIRLONI: And I will note, 5 Commissioner Schenck, that in Fiscal '08 where you see 6 that $30,000, or almost $31,000 figure for Daily 4-Sum 7 It Up, Daily 4 and Daily 4-Sum It Up launched in 8 September of that fiscal year. We had a lot of 9 advertising and promotional support for Daily 4 and 10 the add-on feature. 11 COMMISSIONER SCHENCK: That's what I'm 12 saying, it's probably the lack of advertising 13 that's -- 14 MR. TIRLONI: Or new product trial, the 15 fact that it was a brand-new launch, it had a lot of 16 support behind it. We were running player promotions 17 where if you bought Daily 4, you got another Daily 4 18 play with Sum It Up attached to it, to try to get 19 product trial out. 20 And so I think that's why you see that 21 high figure in '08, you know. '10 is down a little 22 compared to '09 for Daily 4-Sum It Up, but they seem 23 to be pretty close. We've probably at this point now 24 established somewhat of a loyal player base for 25 Daily 4 and the add on-feature. 0100 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 MS. PYKA: Thank you. 4 AGENDA ITEM NO. XVII 5 CHAIRMAN WILLIAMSON: Let's go to Item 6 XVII, report, discussion or action on the transfer to 7 the state and the agency's budget business. 8 Ms. Pyka again. 9 MS. PYKA: Thank you. Again for the 10 record, Kathy Pyka, Controller for the Commission. 11 Commissioners, the first report reflects 12 transfers and allocations to the Foundation School 13 Fund and the allocation of unclaimed prizes for the 14 period ending September 30th of 2009. Total cash 15 transfers to the state amounted to $107.7 million for 16 our first month of the fiscal year. The second page 17 of your notebook includes the detailed information for 18 the monthly transfers of $107.7 million transfer to 19 the state. 20 $87.4 million was the amount transferred 21 to the Foundation School Fund, with the balance of 22 $20.3 million transferred from unclaimed lottery 23 prizes. Commissioners, this represents a 15 percent 24 increase, or $11.4 million over the total amount 25 transferred to the Foundation School Fund in September 0101 1 of 2008. 2 As reflected on the previous sales 3 slide, we know that we've had an increase in sales in 4 Fiscal Year 2009, so I wanted to break down the 5 $11.4 million increase down further. 6 $7.4 million of that gain is attributed 7 to our increased 2010 sales, with a balance of 8 $4 million that was attributed to our accrual for 9 prior year sales. Also under this tab, I wanted to 10 note that our sales, expenditures and transfers from 11 Fiscal Year 1992 to date reflect total cumulative 12 transfers to the Foundation School Fund through 13 September of this year at $11.8 billion. 14 The final item under the tab is our 15 agency's final report on Fiscal Year 2009. Our 16 Commission's lottery account budget for Fiscal Year 17 2009 was $194.6 million. And of this amount, 18 93.4 percent was expended and encumbered at year end. 19 Our bingo operations budget, funded by 20 general revenue, was $15.6 million, with 93.3 percent 21 expended and encumbered through the fiscal year end. 22 I would be happy to answer any questions 23 that you might have, Commissioners. 24 CHAIRMAN WILLIAMSON: The 6.7 percent 25 that's unspent from bingo and for the lottery, what 0102 1 happens to that unspent money? 2 MS. PYKA: Certainly. The unspent money 3 for lottery gets transferred as unspent administrative 4 funds to the Foundation School Fund, so that goes to 5 our bottom line revenue to the Foundation School Fund. 6 The unspent money for bingo is general revenue, and it 7 gets returned to the state as unspent, lapsed money 8 back to the unappropriated general revenue account. 9 CHAIRMAN WILLIAMSON: Thank you. 10 Commissioners, do you have any other 11 questions? 12 Thank you. 13 AGENDA ITEM NO. XVIII 14 CHAIRMAN WILLIAMSON: Then we will go on 15 to Item No. XVIII, the Fiscal Year 2010 itemized 16 operating budget. 17 MS. PYKA: Thank you, Madam Chair. 18 Again for the record, Kathy Pyka, Controller for the 19 Commission. 20 Commissioners, the Fiscal Year 2010-2011 21 General Appropriation Act provides that itemized 22 operating budgets be filed with the Governor's Office 23 of Budget Planning and Policy and the Legislative 24 Budget Board each fiscal year. 25 In accordance with the guidelines 0103 1 published by these two legislative offices, the 2 attached budget document included in your notebook 3 reflects the Commission's previously adopted Fiscal 4 Year 2010 budget as well as actual expenditures for 5 Fiscal Years 2008 and 2009. 6 I wanted to note that in addition to 7 filing hard copies of the budget document, the 8 leadership agencies require us to also file the budget 9 electronically to the LBB and post it on the 10 Commission's website within five days of electronic 11 filing. 12 Also within seven days of submission of 13 the hard copy, the agency is required to provide the 14 LBB and the Governor's Office certification of the 15 integrity of dual submission and assurance that the 16 electronic copy and the hard copy are one and the 17 same. This certification is outlined in the document 18 included your notebook. It is required to be signed 19 by both the board chair, the chief executive officer 20 and the chief financial officer and submitted to the 21 Legislative Budget Board by December 7th of 2009. 22 Commissioners, I wanted to certify to 23 you that the budget that's included in your notebooks 24 was completed by the Office of the Controller on 25 November 4th of this year, and the hard copy in your 0104 1 notebook and the electronic copy with the LBB right 2 now are one and the same. 3 I would be happy to answer any questions 4 that you might have. 5 CHAIRMAN WILLIAMSON: This is an action 6 item. Right? 7 MS. PYKA: Yes. 8 MS. KIPLIN: Yes, this is an action 9 item. And if you vote to approve the budget, then you 10 would be signing as the Chairman but in a capacity 11 representing the Commission. 12 CHAIRMAN WILLIAMSON: Any questions on 13 the budget? 14 COMMISSIONER KRAUSE: No, ma'am. 15 COMMISSIONER SCHENCK: One quick 16 question. 17 MS. PYKA: Yes. 18 COMMISSIONER SCHENCK: The expense items 19 for unhired staff, Phil, you still have quite a few 20 positions left to be filled. Do you think you're 21 going to get those done this year? 22 MR. SANDERSON: I've got five positions. 23 One has been posted and interviews are scheduled this 24 week. That leaves four remaining positions that 25 should be posted within the next two months. 0105 1 COMMISSIONER SCHENCK: Okay. When do 2 you think we'll get those filled? 3 COMMISSIONER SCHENCK: They should be 4 filled by March. 5 COMMISSIONER SCHENCK: All right. 6 CHAIRMAN WILLIAMSON: Thank you. 7 Any other? 8 So would someone like to make a motion 9 to approve this budget? 10 MS. KIPLIN: Yes. 11 CHAIRMAN WILLIAMSON: Is that the 12 proper -- 13 COMMISSIONER KRAUSE: I make a motion 14 that the Commission adopt this budget. 15 COMMISSIONER SCHENCK: Second. 16 CHAIRMAN WILLIAMSON: All in favor? 17 COMMISSIONER SCHENCK: Aye. 18 CHAIRMAN WILLIAMSON: Aye. 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Motion is 21 approved. 22 MS. PYKA: Thank you, Commissioners. 23 AGENDA ITEM NO. XIX 24 CHAIRMAN WILLIAMSON: And let's see. 25 Item XIX, report, discussion or action on the Lottery 0106 1 Operations and Services contract, Amendment No. 8, 2 credit calculation. 3 MS. PYKA: Thank you. Again for the 4 record, Kathy Pyka, Controller for the Commission. 5 Commissioners, this morning I want to 6 provide you an update on Amendment No. 8 of the 7 Lottery Operations and Services contract and the 8 amount due to the Commission for the fourth quarter of 9 Fiscal Year 2009. Commissioners, while there was an 10 increase in quarterly sales and revenue transfers from 11 Fiscal Year 2009 compared to Fiscal Year 2008, the 12 Commission will not be receiving a credit for the 13 fourth quarter under either section of the amendment, 14 as there was a decline in prize pay-out percentage 15 comparing Fiscal Year 2009 to 2008. 16 The amendment also requires the 17 Commission perform a final adjustment to the credit 18 calculation at year end. During the individual 19 quarters of Fiscal Year 2009, the Commission did not 20 receive any credits from the lottery operator nor are 21 there any credits due for the final year-end 22 adjustment. 23 I would be happy to answer any questions 24 that you may have. 25 CHAIRMAN WILLIAMSON: Commissioners, do 0107 1 you have any questions? 2 COMMISSIONER SCHENCK: No. And I assume 3 we're getting these credits because we're seeing the 4 good numbers we're seeing in terms of sales? 5 MS. PYKA: Correct. But there are no 6 credits due to us as a result of the increases that 7 we're seeing but also the overall decline in prize 8 payout. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you. 11 MS. PYKA: Thank you, Commissioners. 12 AGENDA ITEM NO. XX 13 CHAIRMAN WILLIAMSON: Item XX was 14 report, discussion or action on the 81st Legislature. 15 But I don't believe we have anything on that, so we'll 16 just pass on that. 17 AGENDA ITEM NO. XXI 18 CHAIRMAN WILLIAMSON: Okay. We are up 19 now to XXI. Mr. Fernandez, report, discussion and/or 20 action on the lottery operations and services 21 procurement. 22 MR. FERNANDEZ: Madam Chair, 23 Commissioners, good morning. My name is Mike 24 Fernandez. I'm the Director of Administration. 25 Item No. XXI in your Commission briefing 0108 1 book is a posting regarding the procurement of the 2 lottery operator, lottery operator services. As you 3 know, we put that on your agenda last month, with the 4 intent of having it on until we make a recommendation 5 for award. 6 I have no new information to provide you 7 today. As I stated last Commission meeting, our 8 intent is to send the RFP in its entirety to the 9 Contract Advisory Committee at the Comptroller of 10 Public Accounts this month. And we anticipate 11 transmitting that either the latter part of this week 12 or early next week. And that's the current status. 13 CHAIRMAN WILLIAMSON: Great! 14 Any questions, Commissioners? 15 COMMISSIONER SCHENCK: This is just high 16 level questions, Mike. Help me to remember. This 17 contract is not going to address printing. Right now 18 we've divided up -- Scientific Games is handling the 19 printing of the instants for us? The operator 20 contract is distributing all this? 21 MR. FERNANDEZ: Well, the lottery 22 operator contract is services. 23 COMMISSIONER SCHENCK: The printing side 24 of this is still off to the one side. The SciGames 25 contract is not currently directed by this? 0109 1 MR. FERNANDEZ: That's correct. 2 COMMISSIONER SCHENCK: Are we continuing 3 to maintain flexibility as we go forward with this 4 proposal to granulate, to the extent possible, the 5 operations, either by geographic divisions -- I don't 6 imagine they're necessarily feasible -- or by breaking 7 up pieces of the contract? 8 MR. FERNANDEZ: All of those options are 9 under review. 10 COMMISSIONER SCHENCK: Thank you. 11 CHAIRMAN WILLIAMSON: Thank you. 12 AGENDA ITEM NO. XXII 13 CHAIRMAN WILLIAMSON: All right. Let's 14 go on to the next item, XXII. 15 MR. FERNANDEZ: Commissioner, again for 16 the record, my name is Mike Fernandez, Administration 17 Division. Item No. XXII is a briefing item, and this 18 is to advise the Commission of staff's intent to 19 exercise a one-year contract extension with Barker & 20 Herbert Analytical Laboratories. They're our instant 21 ticket testing service provider. So we wanted to 22 advise you that we intend to execute that one-year 23 option on the contract. 24 CHAIRMAN WILLIAMSON: Thank you. 25 Do you have any questions? 0110 1 AGENDA ITEM NO. XXIII 2 CHAIRMAN WILLIAMSON: Let's go to No. 3 XXIII. 4 COMMISSIONER SCHENCK: Well, hold on if 5 I can. 6 CHAIRMAN WILLIAMSON: Okay. 7 COMMISSIONER SCHENCK: I'm sorry. 8 Mike, I'm looking now -- you very 9 helpfully give us this chart of high risk track. I'm 10 not going to save any money today or anything, but I 11 am not remembering this contract with Graves Dougherty 12 for outside counsel. 13 MS. KIPLIN: I'll speak to that. That's 14 on the agency's contract agenda item, which we're 15 seguing right into. The Graves Dougherty outside 16 counsel contract is in connection with providing legal 17 advice and services with regard to the procurement, 18 the lottery operator procurement. 19 MR. FERNANDEZ: That's correct. 20 COMMISSIONER SCHENCK: Okay. I'm in 21 this industry so I'm wondering, are they doing any 22 work for this money that we're -- 23 MS. KIPLIN: They're doing a lot of 24 work. 25 COMMISSIONER SCHENCK: Okay. And we're 0111 1 getting good value for this? 2 MR. FERNANDEZ: Absolutely. We are 3 using their services both in terms of looking at the 4 financial side with Ms. Pyka's team as well as looking 5 at a variety of services with the administrative team 6 and the legal team and operations. So we are. 7 COMMISSIONER SCHENCK: Should we move on 8 to the next item? Is that -- 9 CHAIRMAN WILLIAMSON: Well, this is the 10 next item. 11 MS. KIPLIN: We segued into it. 12 CHAIRMAN WILLIAMSON: This is 13 actually -- we're into Item No. XXIII. 14 COMMISSIONER SCHENCK: I'm sorry. 15 CHAIRMAN WILLIAMSON: That's fine. 16 MR. FERNANDEZ: That's fine. 17 CHAIRMAN WILLIAMSON: I've got that in 18 there now. It's on the record. We're to Item No. 19 XXIII, the report or discuss on other agency 20 contracts. 21 MR. FERNANDEZ: And again, for the 22 record, my name is Mike Fernandez. And as 23 Commissioner Schenck stated, this is the quarterly 24 report or a list of the contracts that we bring in 25 front of the Commissioners routinely, or every 0112 1 quarter, for your edification. 2 What I would say to us is that the prime 3 contracts -- any time we take an action, as you 4 know -- just to refresh you, any time we take an 5 action on a prime contract, we bring that in front of 6 the Commission to advise you that an action will be 7 taken on those contracts. So there really shouldn't 8 be anything -- there shouldn't be any surprises or 9 anything that you haven't heard in a Commission 10 meeting when we propose to amend or extend a contract. 11 COMMISSIONER SCHENCK: This is the first 12 time I remember seeing Xerox or Graves Dougherty 13 contracts on this report. 14 MR. FERNANDEZ: Xerox is on there. If 15 you go back to the past spreadsheets, you'll see the 16 Xerox contract on there. 17 COMMISSIONER SCHENCK: Okay. And again, 18 now that we're on this topic, if I can? 19 CHAIRMAN WILLIAMSON: Sure. 20 COMMISSIONER SCHENCK: Graves Dougherty, 21 we have a contract period ending 8/31/09. I guess 22 that's already been extended -- 23 MR. FERNANDEZ: That's correct. 24 COMMISSIONER SCHENCK: -- through the 25 end of August of next year. Estimated annual cost, 0113 1 $150,000. Are they billing us by the hour? Is this a 2 flat rate? 3 MR. FERNANDEZ: That's a billable. 4 MS. KIPLIN: Well, let me address that. 5 The outside legal contracts have to be approved by the 6 Office of the Attorney General, so it's, if you will, 7 a three-party contract. It is an hourly rate, 8 depending on who is doing the services that's been 9 identified in their proposal. Their services were 10 procured through a competitive procurement, and they 11 were the successful proposer. It's at an hourly rate. 12 Those billings come in monthly. We review those 13 billings. 14 COMMISSIONER SCHENCK: Do we determine 15 who it is that's working on the matter for us? 16 MS. KIPLIN: Yes; yes, we do. 17 COMMISSIONER SCHENCK: Okay. 18 MS. KIPLIN: Yes, we do. 19 COMMISSIONER SCHENCK: Is it a blended 20 rate or is it -- are we paying more for different -- 21 MS. KIPLIN: We're paying more for 22 different persons. 23 COMMISSIONER SCHENCK: Okay. 24 MS. KIPLIN: Depending on who they are 25 and their level of expertise. The particular 0114 1 individual that's providing the primary services, the 2 lion's share, is the same attorney that has been 3 working on the procurement that resulted in the 4 contract we're under now was involved in the '98 5 procurement, so -- 6 COMMISSIONER SCHENCK: So this is an 7 experienced lawyer, then, that's a partner at Graves 8 Dougherty? 9 MS. KIPLIN: Very much so. It's a 10 person who has got a blend of expertise in 11 administrative law, state government law, is very 12 knowledgeable with regard to the lottery and this 13 particular contract. 14 COMMISSIONER SCHENCK: Okay. Very good. 15 And, Mike, on that Xerox contract, 16 $450,000, I see that no agency intends to renew after 17 that? 18 MR. FERNANDEZ: The agency will look at 19 extending that contract. 20 COMMISSIONER SCHENCK: Okay. It's a lot 21 of money. 22 MR. FERNANDEZ: We go in and reassess 23 that operation before we renew. So what we will take 24 a look at is, we will take a look at all of the work 25 that has been done in terms of that contract. 0115 1 COMMISSIONER SCHENCK: What are we 2 getting under that? Is that printers and hardware? 3 MR. FERNANDEZ: What that is, is that's 4 our document copy center. So the way that's 5 structured is that all units or all operating units in 6 the division can ship large print jobs to them. So 7 like the RFPs that you see come out or large volume 8 print jobs for the agency from the staff will go 9 through that service. 10 COMMISSIONER SCHENCK: Well, are we not 11 now using more electronic communications? 12 MR. FERNANDEZ: That's correct. We do, 13 but -- 14 COMMISSIONER SCHENCK: And there should 15 be cost savings associated with that somewhere, I 16 would hope. 17 MR. FERNANDEZ: There is cost savings. 18 But interestingly enough, many of our documents are 19 still being presented in hard copy. And, in fact, I 20 can't remember the bill, but if you go back and look 21 at some proposed legislation in the last session, they 22 talk about documents that we have to ship in multiple 23 copies to the legislative and legislative staff, the 24 LBB and others. 25 COMMISSIONER SCHENCK: And the law says 0116 1 that? 2 MR. FERNANDEZ: Well, that is the way it 3 works. The proposal was that that be eliminated and 4 that we send a query to those groups and say, "Would 5 you prefer to have this electronically?" 6 COMMISSIONER SCHENCK: Why don't we just 7 send a .pdf and let them hit the print button and it 8 can be on their budget? 9 MR. FERNANDEZ: Some of them will not 10 take it that way. 11 COMMISSIONER SCHENCK: I understand. 12 MR. FERNANDEZ: That is not our option. 13 COMMISSIONER SCHENCK: I'm not as 14 worried about the Legislature. But I just think, 15 Mike, you've got to be able to find some money in that 16 contract. 17 MR. FERNANDEZ: We will look at it. We 18 certainly will look at it. 19 COMMISSIONER SCHENCK: That's a lot of 20 money for paper. 21 MR. FERNANDEZ: We will look at it. 22 COMMISSIONER SCHENCK: And it's killing 23 trees, it's putting bleach into the environment. It's 24 doing all kinds of bad things. 25 MR. FERNANDEZ: Yes, sir. 0117 1 COMMISSIONER SCHENCK: So less paper is 2 better. 3 MR. FERNANDEZ: We will be cognizant of 4 that when we look at the renewal. 5 CHAIRMAN WILLIAMSON: All right. Let's 6 see. Let's go on -- any other comments? 7 COMMISSIONER KRAUSE: No, ma'am. 8 AGENDA ITEM NO. XXIV 9 CHAIRMAN WILLIAMSON: Item XXIV, 10 consideration of and possible discussion and/or action 11 on the lottery operator contract, including whether 12 the negotiation of the lottery operator's contract in 13 an open meeting would have a detrimental effect on the 14 Commission's position in negotiations of the lottery 15 operator contract. 16 MS. KIPLIN: Commissioners, this is the 17 point where I say that you have the opportunity, if 18 you wish, to deliberate the negotiations of this 19 contract in executive session. But before you do, you 20 have to make a determination in the open that to 21 deliberate in the open would have a detrimental effect 22 to those negotiations. It's a particular exemption 23 that the Lottery Commission has in its enabling 24 statutes that gives you the opportunity to go into 25 closed session. 0118 1 Now, in my discussions with 2 Mr. Fernandez, I don't believe that your deliberations 3 in the open would have a detrimental effect, but he is 4 here to also provide that information 5 MR. FERNANDEZ: I concur with counsel. 6 I have no need to go into executive session for this 7 topic. 8 CHAIRMAN WILLIAMSON: Okay. Then let's 9 proceed. 10 MR. FERNANDEZ: Again, for the record, 11 my name is Mike Fernandez, Administration Division. 12 Item XXIV in your briefing book is a briefing item, 13 and that's to advise you of staff's intent to amend 14 the current GTECH contract to include the provision of 15 5,000 additional express point Check-A-Ticket 16 terminals. The addition of these devices will be at 17 no cost to the agency and bring the number of Check-A- 18 Ticket terminals to over 16,000 statewide, once full 19 deployment has been reached. 20 COMMISSIONER KRAUSE: Did you say 16 or 21 60? 22 MR. FERNANDEZ: Sixteen. 23 COMMISSIONER SCHENCK: 16,000. 24 MR. FERNANDEZ: 16,000 devices. 25 CHAIRMAN WILLIAMSON: Mike, how long 0119 1 have y'all been talking with GTECH? 2 MR. FERNANDEZ: Well, actually, 3 Commissioners, this discussion -- Mr. Grief had 4 entered into discussions, I think, some five months 5 ago or perhaps longer, he and Mr. Anger, with the 6 GTECH Corporation, to provide these services or to 7 provide these devices. And I think that that 8 discussion centered around the best interest of both 9 the organizations as well as the playing public. I 10 believe, obviously, that GTECH shares the same concern 11 and interest that the agency does and has agreed to 12 provide those, and certainly we believe that's of 13 benefit to the state. 14 It's my understanding that the roll-out 15 will begin in February and should be concluded by 16 August. And I know that Gary has been very deeply 17 involved in this. And I would offer any comments that 18 you might want to add, Gary. 19 MR. GRIEF: I just -- nice job, Mike. I 20 just offer that we're procuring through our GTECH 21 contract these devices. And there's plenty of devices 22 to cover every Texas Lottery retailer location in 23 Texas. However, there's no mechanism in place that we 24 have to force our retailers to take these. So they 25 will be provided to any retailer that wants to have 0120 1 one of these devices at their particular location. 2 And sometimes that can be dictated at a 3 corporate level when it's a chain of locations. 4 Sometimes it can be dictated by a sole proprietorship 5 situation where they have to make a decision based on 6 the logistics and the layout of their particular 7 store. 8 CHAIRMAN WILLIAMSON: Commissioners, any 9 questions or comments? 10 COMMISSIONER KRAUSE: Well, they're our 11 licensees. Right? 12 MR. GRIEF: Correct. 13 COMMISSIONER KRAUSE: And so -- and I'm 14 not advocating that we tell them what they have to 15 offer. But, I mean, are we in a position where we can 16 say, "Look, if you want to be a licensee, then you 17 have to offer all our games"? 18 MR. GRIEF: Well, they do offer our 19 games. This is actually a Check-A-Ticket device that 20 allows a player to come in and check their ticket and 21 see if it's a winner. It's a piece of equipment, if 22 you will, in the most brutal sense that's not a money- 23 maker for the retailer, per se. It's a convenience 24 customer service item for the players who come into 25 the store. 0121 1 Now, we could -- they are our licensee, 2 as you pointed out, Commissioner. And I would defer 3 to counsel, but I assume that the Commission could 4 propose and adopt a rule that would require retailers 5 to take such devices. But the staff would want to 6 look at that very carefully and give you advice or a 7 recommendation on the cost-benefit analysis of that 8 and any potential retailers that we might lose, 9 perhaps, because they at some point might deem that it 10 might be too cumbersome to do business with us in that 11 regard. 12 COMMISSIONER KRAUSE: Well, having said 13 what I said, you know, I'm not automatically in favor 14 of, you know, forcing our licensees to, you know, take 15 everything that we have to offer. But at least we do 16 have flexibility to decide who we want our licensees 17 to be, I suppose. 18 MR. GRIEF: And once these are fully 19 deployed, it will be at the vast majority of retailer 20 locations, both geographically and by population as 21 well. And it will be, in our opinion, very easy for 22 our lottery players to go to a location that has this 23 kind of device, if they want to take advantage of 24 that. 25 COMMISSIONER KRAUSE: Well, if it 0122 1 becomes popular, then we don't need to mandate it. 2 The retailers will see that it's in their best 3 interest. 4 COMMISSIONER SCHENCK: I can't imagine 5 there are many retailers now that are actually 6 objecting to it. It's a small device, isn't it? 7 MR. GRIEF: In what we've seen, 8 Commissioner, is those few situations where there have 9 been some rejection, it's initial rejection. And then 10 they come to understand that that's a good customer 11 service device to offer their players. And their 12 players like it, and the market tends to drive that to 13 their location. 14 I just wanted to make sure and put it on 15 the record that you-all were made aware, it's not a 16 mandatory thing that those be in all locations, but 17 they will be in the vast majority. 18 CHAIRMAN WILLIAMSON: And if I remember, 19 Michael, if I remember your comments before, we have 20 like 11,000 in place already or something like that? 21 MR. FERNANDEZ: (Nods head) 22 CHAIRMAN WILLIAMSON: All right. Let's 23 go on to -- thank you, Michael. 24 MR. FERNANDEZ: Thank you. 25 AGENDA ITEM NO. XXV 0123 1 CHAIRMAN WILLIAMSON: XXV, report, 2 discussion and/or action on HUB and/or minority 3 business participation, including the agency's Mentor 4 Protege Program. 5 MS. BERTOLACINI: Good morning, 6 Commissioners. For the record, my name is Joyce 7 Bertolacini. I'm the coordinator of the Texas Lottery 8 Commission's Historically Underutilized Business 9 Program. 10 The Fiscal Year 2009 statewide HUB 11 report was released on October 15th by the Comptroller 12 of Public Accounts. And included in your notebooks 13 today are summary reports that compare and analyze the 14 TLC's FY 2009 performance to that of the previous 15 fiscal year. 16 The agency's overall HUB participation 17 for FY 2009 was 23.1 percent. This represents HUB 18 expenditures as a percent of the total agency 19 expenditures that are captured by the statewide HUB 20 report. Our overall FY 2009 participation rate 21 decreased slightly from our FY 2008 percentage of 22 26.9 percent. The agency increased HUB participation 23 in the commodity purchasing category, from 24 34.74 percent to 50.62 percent and also had a slight 25 increase in the professional services category. 0124 1 For this report period, the TLC was 2 ranked 15th by the total expenditures captured by the 3 annual statewide HUB report. And we like to look at 4 ourselves in relation to the other agencies that spent 5 as much or more basically than we did. Of the 15 6 largest spending state agencies, the TLC ranked No. 4 7 by the overall HUB percentage that we achieved. 8 Regarding the agency's Mentor Protege 9 Program, our five current mentor protege relationships 10 will be expiring on December 5th. I have been in 11 communication with our mentor companies, and at least 12 one of the relationships will be extended. In 13 addition, during the remainder of this fiscal year, I 14 do plan to work on forming new mentor protege 15 relationships that will be established for two-year 16 terms. 17 And I would be happy to answer any 18 questions that you may have. 19 CHAIRMAN WILLIAMSON: Thank you. 20 Commissioners, do you have any 21 questions? 22 COMMISSIONER KRAUSE: Is LatinWorks 23 considered an historically underutilized business? 24 MS. BERTOLACINI: Yes, they are. 25 COMMISSIONER KRAUSE: Okay. 0125 1 MS. BERTOLACINI: They are certified by 2 the state. 3 COMMISSIONER SCHENCK: Am I 4 misremembering or did this report used to have a 5 little more information showing, for instance, 6 African-American, Hispanic, Asian, a little more 7 detail in terms of where the money -- our contracting 8 money is going? I have a one-page report. 9 MS. BERTOLACINI: Well, there should be 10 four reports as part of this -- there should be four 11 summary reports. 12 CHAIRMAN WILLIAMSON: We just have one. 13 COMMISSIONER SCHENCK: Okay. That 14 explains it. 15 MS. BERTOLACINI: I apologize. Yes, you 16 should have had four pages. And we don't break it 17 down by group necessarily -- oh, yes, we do, as a 18 matter of fact, in Summary Report No. 3. We will send 19 those to you. 20 COMMISSIONER SCHENCK: I recall the 21 Hispanic number disappointingly low historically, and 22 I had asked a year or two ago that we focus on that. 23 MS. BERTOLACINI: And, actually, looking 24 at what I have here, from FY 2008 to 2009, we did have 25 an increase in the Hispanic participation. 0126 1 COMMISSIONER SCHENCK: Thank you. 2 CHAIRMAN WILLIAMSON: Thank you. I know 3 the Commission does a good job with that. And, you 4 know, we're very proud of our being in the top four 5 percent. 6 MR. FERNANDEZ: Thank you, Chairman. If 7 you permit me -- what I would like to say is that I 8 know Joyce's goal is to be No. 1, and I appreciate 9 that very much and I support that goal. But as you 10 know, I've been in government a long time, and my goal 11 is to be in the top 10. 12 And I would like to publicly thank Joyce 13 for all the hard work that she's done. She's very 14 diligent. She works very closely with our purchasers 15 and with our contract specialists when we put bids 16 our, reviews those, and continues to seek ways to 17 improve those numbers. But I think that Joyce has 18 done an excellent job, and we're very glad to have her 19 on our staff. 20 CHAIRMAN WILLIAMSON: Thank you, Joyce. 21 AGENDA ITEM NO. XXVII 22 CHAIRMAN WILLIAMSON: Let's go on to 23 Item No. XXVII, report on Mega Millions. Mr. Grief. 24 MR. GRIEF: Commissioners, other than 25 what is in your notebooks, I don't have anything to 0127 1 report on this item. However, I would like to comment 2 on the cross-sell initiative. 3 I heard Mr. Wassdorf say earlier -- he 4 identified me as the sole point of contact on this 5 matter in our negotiations. And while that sounds 6 very respectable, the agency -- this has been a 7 priority for the agency. And there have been staff 8 from all divisions who have put in time and effort to 9 bring this rule and bring it to you in a state where 10 you could see fit to propose it for public comment. 11 And I want to publicly thank all of our 12 staff who have had a part in that. There's way too 13 many to name. But people have done yeomen's work. 14 And I also want to recognize the work of our vendor, 15 GTECH, who has really stepped up and helped us 16 research this initiative. And as a company, they went 17 out on their own and, on a national scale, spent a 18 large amount of money on research and development to 19 bring the needed details to the leadership in both 20 groups, so they played a big part in that as well. 21 I just wanted to put that on the record 22 for you-all to know. It's been a great team effort on 23 the part of the agency. 24 CHAIRMAN WILLIAMSON: Thank you. 25 0128 1 AGENDA ITEM NO. XXVIII 2 CHAIRMAN WILLIAMSON: Let's continue on. 3 Speaking of GTECH, Item No. XXVIII, report on the 4 GTECH Corporation. 5 MR. GRIEF: Nothing to report, Madam 6 Chair, other than what's in your notebook. 7 COMMISSIONER SCHENCK: Gary, do you 8 understand what this transaction was in here with 9 respect to the holdings of GTECH? It looks to me like 10 the parent company divested itself in part of an 11 interest in GTECH, the U.S. affiliate, and invested -- 12 put its shares in another holding company which in 13 turn is holding GTECH at this point. Is that right? 14 MR. GRIEF: Commissioner, we're very 15 fortunate today, in that we have a member of the 16 senior management team of GTECH in attendance. And I 17 certainly am not qualified to comment, but I believe 18 Mr. Eland might be willing to address the Commission. 19 COMMISSIONER SCHENCK: I assume this was 20 a tax transaction, tax-driven transaction or some 21 reason like that? 22 MR. ELAND: Alan Eland from GTECH 23 Corporation. Let me apologize first for 24 disappointing. I can't address in any level of detail 25 that transaction. I can promise you that if the 0129 1 Commission would like, I would bring somebody here at 2 the next meeting to address any specific questions, or 3 in the interim. We can do that. 4 COMMISSIONER SCHENCK: I'm not sure 5 that's even necessary. I'm just looking at what ends 6 up being the chart, and I just want to make sure I'm 7 understanding who ultimately we're doing business 8 with. And it looks like it's all still going back to 9 Lottomatica Group, which is the Italian ultimate 10 parent. 11 But it looks to see as though, from the 12 press release, Lottomatica has divested itself of 13 approximately 22 percent of GTECH but put that 14 interest back in Invest Games, a Luxembourg-based 15 entity that Lottomatica in turn owns 100 percent. So 16 I'm assuming there must be some tax advantage reason 17 for doing that. But it doesn't ultimately -- the only 18 question I have is, it is not ultimately changing who 19 it is that's running GTECH? 20 MR. ELAND: That's correct; that's 21 correct. 22 COMMISSIONER SCHENCK: That was my main 23 question. And I don't think I need Mr. Patel or 24 anyone to come just for that reason. 25 MR. ELAND: I understand. 0130 1 CHAIRMAN WILLIAMSON: Any other 2 questions? 3 COMMISSIONER KRAUSE: No, ma'am. 4 CHAIRMAN WILLIAMSON: Thank you, Alan. 5 AGENDA ITEM NO. XXIX 6 CHAIRMAN WILLIAMSON: Item No. XXIX, 7 Mr. Grief again, agency's operational status, agency 8 procedures and FTE status. 9 MR. GRIEF: Commissioners, you have the 10 routine FTE report in your notebooks. Other than 11 that, I have nothing further to report. 12 CHAIRMAN WILLIAMSON: Any questions, 13 Commissioners? 14 COMMISSIONER SCHENCK: Phil, those five 15 empty chairs have got to get filled here. You told me 16 it would be done by March. Right? 17 MR. SANDERSON: I've got staff working 18 on it right now. 19 COMMISSIONER SCHENCK: Okay. By march. 20 Very good. Thank you. 21 CHAIRMAN WILLIAMSON: Commissioner, do 22 you have any? 23 AGENDA ITEM NO. XXX 24 CHAIRMAN WILLIAMSON: All right. Let's 25 go on to Item No. XXX, a whole slew of entry orders. 0131 1 MS. KIPLIN: Commissioners, in your 2 agenda are Items A through L. And with your 3 permission, I would like to Items A through K 4 together. These are all lottery retailers. In each 5 one of these cases, it was a determination by the 6 State Office of Administrative Hearings Administrative 7 Law Judge that there were insufficient funds available 8 at the time that the lottery swept the account. In 9 each one of these cases, the ALJ has recommended 10 revocation of the license. And the staff recommends 11 that you adopt the ALJ's recommendation in each one of 12 these cases, Items A through K. 13 CHAIRMAN WILLIAMSON: Commissioners, do 14 you have any questions or comments? 15 COMMISSIONER SCHENCK: I'll confess I 16 haven't studied these as closely as I normally do. 17 I'm looking -- if you'll bear with me for a second. 18 CHAIRMAN WILLIAMSON: Sure. 19 COMMISSIONER SCHENCK: At least this 20 time we have nice geographic diversity. We have 21 deadbeats from all over the state. 22 And these are all revocations -- 23 MS. KIPLIN: Yes, they are. 24 COMMISSIONER SCHENCK: -- post-SOAH? 25 Okay. Well, that's fine, then. And Rockwell. 0132 1 All right. I'm going to move we adopt 2 staff's recommendation and enter orders to revoke the 3 licenses of each of these retailers. 4 CHAIRMAN WILLIAMSON: Second. 5 All in favor? 6 COMMISSIONER KRAUSE: Aye. 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN WILLIAMSON: Aye. 9 Motion passes. 10 MS. KIPLIN: Commissioners, I have 11 orders in each one of these cases. 12 There is one remaining item, and that's 13 Item L. This is a bingo matter, and this also is a 14 matter that went to the State Office of Administrative 15 Hearings. This is in the refusal to add the names of 16 each one of these enumerated individuals on the 17 Commission's registry of approved bingo workers, for 18 the same reason, disqualifying criminal conviction. 19 The State Office of Administrative 20 Hearings Administrative Law Judge has recommended 21 refusing to add the names to the registry of workers. 22 And I've got an order, should you decide to approve 23 staff's recommendation adopting the ALJ's 24 recommendation. 25 CHAIRMAN WILLIAMSON: Commissioners, do 0133 1 you have any questions or comments? 2 COMMISSIONER SCHENCK: I'll ask the same 3 question I ask every time we sign these orders. Are 4 we going to consider at some point a rule to impose a 5 fee or a fine on our regulated entity who is 6 submitting to us applicants who are criminals and 7 unqualified to get on the bingo registry? 8 MS. KIPLIN: These are actually 9 individual applications that are filed by the 10 individual to be placed on the registry of workers, so 11 our action is against them. Organizations are not to 12 be using persons who are not on the registry. 13 COMMISSIONER SCHENCK: I understand 14 that. On the form that these people filled out, there 15 was a box that said, "Are you or are you not a felon?" 16 And they swore the answer was "No" and we found the 17 answer to be "Yes." 18 MS. KIPLIN: Yes. 19 COMMISSIONER SCHENCK: And we go through 20 these administrative hearings, and we spent attorney 21 time and staff time telling these people what they 22 already know, which is that, "You were convicted of a 23 crime, and you didn't tell us about it. We just spent 24 a bunch of time and energy on that." 25 MR. SANDERSON: Let me add, there was a 0134 1 change in House Bill 1474, that if an applicant 2 makes -- an individual makes an application to be on 3 the worker registry and they are disqualified, prior 4 to 1474, we had to go to hearing. Now we notice them 5 for a hearing. And if they do not request the 6 hearing, then they're automatically removed from that, 7 so at least we're not going to hearing on those. 8 CHAIRMAN WILLIAMSON: All right. 9 COMMISSIONER SCHENCK: Do we put it in 10 bold print on the form, all caps? 11 MR. SANDERSON: I can go back and look 12 and see. I'm not sure right now. On the form itself 13 as far as the conviction? 14 COMMISSIONER SCHENCK: Yes. I would 15 just propose at some point we think about putting at 16 the bottom of the form, wherever they sign it, "A 17 false certification on this form may result in an 18 administrative fine not to exceed" $100 or $500, 19 something like that. "And if you are a felon and you 20 check the box, 'I am not a felon,' we're going to come 21 for a hundred or $500," whatever it is. 22 MR. SANDERSON: One of the other things 23 that House Bill 1474 provided was a clear definition 24 of "crime of moral turpitude," and I think that will 25 also help in the future. 0135 1 CHAIRMAN WILLIAMSON: All right. 2 COMMISSIONER SCHENCK: Is tax evasion a 3 crime of moral turpitude? 4 COMMISSIONER KRAUSE: Yes. 5 COMMISSIONER SCHENCK: I think it is. 6 MR. SANDERSON: Fraud. 7 COMMISSIONER SCHENCK: Fraud, yes. 8 Well, that's helpful. It just amazes me 9 that every month we get this list of people who have 10 told us they're not felons or criminals, and we find 11 that they are and we go through this hearing process 12 with respect to each one of them. There's nothing to 13 debate here. I mean, it is what it is. 14 CHAIRMAN WILLIAMSON: All right. On 15 that note, is there a motion to approve these refusal 16 to add them in? 17 COMMISSIONER SCHENCK: It is the staff 18 recommendation that these people's names be not 19 listed -- 20 MS. KIPLIN: Yes. 21 COMMISSIONER SCHENCK: -- in the bingo 22 worker registry? 23 MS. KIPLIN: Yes. 24 COMMISSIONER SCHENCK: I make that 25 motion, that we approve staff recommendation not to 0136 1 list these names in the bingo registry. 2 COMMISSIONER KRAUSE: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 MS. KIPLIN: I have an order. 8 AGENDA ITEM NO. XXXII 9 CHAIRMAN WILLIAMSON: That gets us down 10 to -- okay. I think at this time -- we've already 11 taken care of public comment. So at this time, which 12 is 11:50, I move that the Texas Lottery Commission go 13 into executive session to deliberate the appointment, 14 employment and duties of the Executive Director, the 15 duties and evaluation of the Deputy Executive 16 Director, Internal Audit Director and Charitable Bingo 17 Operations Director and, to deliberate the duties of 18 the General Counsel and Human Resources Director, 19 pursuant to Section 551.074 of the Texas Government 20 Code, and to receive legal advice regarding pending or 21 contemplated litigation, pursuant to 22 Section 551.071(1)(A) and/or to receive legal advice 23 concerning settlement offers, pursuant to Section 24 551.071(1)(B) of the Texas Government Code and/or to 25 receive legal advice pursuant to Section 551.071(2) of 0137 1 the Texas Government Code, including but not limited 2 to those items posted on the open meetings notice for 3 purposes of receiving legal advice. 4 Is there a motion? 5 COMMISSIONER SCHENCK: I so move. 6 CHAIRMAN WILLIAMSON: Oh, do I need a 7 motion? 8 MS. KIPLIN: Yes. 9 CHAIRMAN WILLIAMSON: Is there a second? 10 COMMISSIONER KRAUSE: Second. 11 CHAIRMAN WILLIAMSON: All in favor? 12 COMMISSIONER SCHENCK: Aye. 13 CHAIRMAN WILLIAMSON: Yes. 14 COMMISSIONER KRAUSE: Aye. 15 MS. KIPLIN: The time is? 16 CHAIRMAN WILLIAMSON: I gave her the 17 time, 11:50. 18 MS. KIPLIN: Thank you. 19 (Recess for executive session: 20 11:50 a.m. to 1:05 p.m.) 21 AGENDA ITEM NO. XXXIII 22 CHAIRMAN WILLIAMSON: The Texas Lottery 23 Commission is out of executive session. The time is 24 1:05 p.m. Let's see. And there is an action item 25 that we want to take as a result of executive 0138 1 session -- no, that's part of an agenda item, isn't 2 it? 3 MS. KIPLIN: That's correct. 4 CHAIRMAN WILLIAMSON: Okay. That's 5 correct. 6 AGENDA ITEM NO. XXXIV 7 CHAIRMAN WILLIAMSON: Okay. The next 8 item on the agenda is the consideration of and 9 possible discussion and/or action on request to set 10 salary rate for the Executive Director position. 11 Commissioners, I have asked Kathy Pyka 12 to provide us information on this matter, please. 13 MS. PYKA: For the record, Kathy Pyka, 14 Controller for the Commission. 15 Chairman Williamson requested that I 16 provide you information in connection with what is 17 required for the Commission to submit a request to the 18 Governor's Office of Budget Planning and Policy and 19 the Legislative Budget Board for approval to increase 20 the rate of compensation for the Commission's 21 Executive Director position. 22 Commissioners, the request would be 23 submitted in accordance with Article IX, Section 3.05, 24 schedule of exempt positions. The request would need 25 to note that the salary will be paid utilizing general 0139 1 revenue - dedicated, lottery account number fund, 5025 2 funding. 3 And the request needs to include the 4 following three items: First, the date that the board 5 approved the request, a statement justifying the need 6 to exceed the current limitation and, again, the 7 source of funds to be used to pay the additional 8 salary amount. 9 I would be happy to answers any 10 questions. 11 CHAIRMAN WILLIAMSON: What is the 12 current salary right now for that position? 13 MS. PYKA: Certainly. The current 14 salary as authorized in the General Appropriations Act 15 is $140,900. 16 CHAIRMAN WILLIAMSON: Okay. Thank you. 17 Commissioners, do you have any 18 questions? 19 COMMISSIONER SCHENCK: I do. 20 Kathy, have we studied the salaries of 21 other state executive director positions? 22 MS. PYKA: Yes, we have. We've 23 performed an updated review of that this past summer 24 after the legislative session ended, just to analyze 25 what occurred this last legislative session. 0140 1 COMMISSIONER SCHENCK: Do you know what 2 our neighboring states -- Louisiana, Oklahoma, 3 New Mexico -- might be paying? 4 MS. PYKA: Other state lotteries? Okay. 5 Yes, I do. Louisiana is compensated at $192,000. 6 Oklahoma is $184,485. New Mexico is compensated at 7 $165,000. 8 COMMISSIONER SCHENCK: And Arkansas now 9 has a lottery also. That's our last neighboring 10 state. What do they -- 11 MS. PYKA: And Arkansas is $324,000. 12 COMMISSIONER SCHENCK: Okay. So we'll 13 well below all the neighboring lotteries. And 14 Oklahoma, can you remind me what Oklahoma is paying? 15 MS. PYKA: Yes, Commissioner Schenck. 16 Oklahoma is $184,485. And when I did that, I looked 17 at it -- in addition to looking at the salary, I 18 looked at also what their sales, traditional sales 19 ranking is, as well as their population. So we're 20 below all of those neighboring states. 21 COMMISSIONER SCHENCK: They have much 22 smaller lotteries for the most part? 23 MS. PYKA: Correct, yes. 24 COMMISSIONER SCHENCK: Okay. Thank you. 25 MS. PYKA: You're welcome. 0141 1 CHAIRMAN WILLIAMSON: And generally, 2 because I've looked at this quite a bit, our salary 3 range is way below, particularly other comparable, 4 larger states. So anyway, that's sort of what drove 5 me to get to this point. 6 COMMISSIONER SCHENCK: And I would think 7 the cost of living in Austin, Texas, is probably 8 higher than Baton Rouge, Louisiana. 9 MS. PYKA: Right. 10 COMMISSIONER KRAUSE: Or Oklahoma City. 11 COMMISSIONER SCHENCK: Oklahoma City, or 12 other garden spots. 13 COMMISSIONER KRAUSE: Or Little Rock, 14 $300,000. 15 COMMISSIONER SCHENCK: Well, by the 16 way -- well, I think I'll leave it right there. 17 Little Rock is a fine city, and I would love to make 18 $350,000 in Little Rock. 19 COMMISSIONER KRAUSE: And operate a 20 small lottery? 21 COMMISSIONER SCHENCK: Yes, that would 22 be good. 23 CHAIRMAN WILLIAMSON: The salary, 24 gentlemen, that I was looking to request -- and how 25 we'll word this or how it will be styled will be a 0142 1 "not-to-exceed" statement, is $185,350. So that's 2 sort of what I was looking at. 3 COMMISSIONER KRAUSE: Would you like a 4 motion? 5 CHAIRMAN WILLIAMSON: Well, if there are 6 not any more comments. 7 COMMISSIONER KRAUSE: Comment? 8 COMMISSIONER SCHENCK: I thank the Chair 9 for her hard work in getting all this data together 10 and considering what we will hopefully make as 11 competitive in our attempt to fill the ED position. 12 CHAIRMAN WILLIAMSON: And, actually, I 13 would have to extend that on to Kathy and various 14 other people in her department, because they're 15 actually more the heavy lifters on this. So thank you 16 for doing that and keeping me updated. 17 MS. PYKA: You're so very welcome. 18 CHAIRMAN WILLIAMSON: Yes, I would like 19 to hear a motion. 20 COMMISSIONER KRAUSE: I make a motion 21 that the Commission request the Governor and the 22 Legislative Budget Board approve the setting of the 23 salary rate for the Executive Director position in an 24 amount not to exceed $185,350, pursuant Section 3.05, 25 Article IX, of the General Appropriations Act. 0143 1 Second? 2 CHAIRMAN WILLIAMSON: Is there a second? 3 COMMISSIONER SCHENCK: Yes. 4 CHAIRMAN WILLIAMSON: All in favor? 5 COMMISSIONER SCHENCK: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 COMMISSIONER KRAUSE: Aye. 8 CHAIRMAN WILLIAMSON: Motion passes 3-0. 9 AGENDA ITEM NO. XXXV 10 CHAIRMAN WILLIAMSON: Commissioners, I 11 believe this concludes the business of the day. Is 12 there a motion to adjourn? 13 COMMISSIONER KRAUSE: I so move. 14 CHAIRMAN WILLIAMSON: Second? 15 COMMISSIONER SCHENCK: Second. 16 CHAIRMAN WILLIAMSON: All in favor? 17 COMMISSIONER SCHENCK: Aye. 18 CHAIRMAN WILLIAMSON: Aye. 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Vote carries 3-0. 21 The meeting is adjourned as of 1:10 p.m. 22 COMMISSIONER SCHENCK: Thank you. 23 CHAIRMAN WILLIAMSON: Thank you, 24 Commissioners. 25 (Meeting adjourned: 1:10 p.m.) 0144 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified 5 Shorthand Reporter in and for the State of Texas, do 6 hereby certify that the above-mentioned matter 7 occurred as hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings 9 of such were reported by me or under my supervision, 10 later reduced to typewritten form under my supervision 11 and control and that the foregoing pages are a full, 12 true and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set 14 my hand and seal this 25th day of November 2009. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/10 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233. 23 24 25