0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 16 TEXAS ADMINISTRATIVE CODE § 6 §401.153 § 16 TEXAS ADMINISTRATIVE CODE § 7 §402.104 § 8 9 PUBLIC COMMENT ON RULEMAKINGS 10 THURSDAY, DECEMBER 4, 2008 11 12 BE IT REMEMBERED THAT on Thursday, 13 the 4th day of December 2008, the above-entitled 14 public comment hearing was held from 2:05 p.m. to 15 2:22 p.m., at the Offices of the Texas Lottery 16 Commission, 611 East 6th Street, Austin, Texas 78701, 17 before SANDRA JOSEPH, SPECIAL COUNSEL. The following 18 proceedings were reported via machine shorthand by 19 Aloma J. Kennedy, a Certified Shorthand Reporter of 20 the State of Texas, and the following proceedings were 21 had: 22 23 24 25 0002 1 APPEARANCES 2 SPECIAL COUNSEL: 3 Ms. Sandra Joseph 4 ASSISTANT GENERAL COUNSEL: 5 Mr. Pete Wassdorf 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, DECEMBER 4, 2008 4 4 COMMENTS ON BEHALF OF THE LITTLEFIELD CORPORATION (MINCH) 5 5 COMMENTS ON BEHALF OF GAMETECH 6 INTERNATIONAL (NANCE) 15 7 REPORTER'S CERTIFICATE 17 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0004 1 P R O C E E D I N G S 2 THURSDAY, DECEMBER 4, 2008 3 (2:05 p.m.) 4 MS. JOSEPH: Good afternoon. My name 5 is Sandra Joseph, Special Counsel, Legal Division of 6 the Lottery Division. Sitting with me is Phil (sic) 7 Wassdorf, Assistant General Counsel, Legal Division. 8 Who did I say -- Phil? Pete. Excuse 9 me. We were just talking about Phil Gamble a minute 10 ago, and I got Phil stuck in my head. All right. 11 Excuse me. 12 We're here today to receive public 13 comments on two rules. The first one is 16 TAC 14 Section 402.104. This is a new rule relating to 15 professional gambler and gambling promoter. The 16 purpose of the new rule is to define the terms 17 "professional gambler" and "gambling promoter" as used 18 in the Bingo Enabling Act. 19 The second rule is 16 TAC Section 20 401.153, relating to qualifications for license. The 21 purpose of the amendments is to redefine the term 22 "professional gambler" as used in the State Lottery 23 Act. 24 There is a 60-day comment period on 25 this rule. And I counted the days a few minutes ago, 0005 1 before the hearing, and I calculate January 13th as 2 being the 60th day, so the Commission will receive 3 written comments through that day. 4 We appreciate your being here today. I 5 would like to ask anyone who plans to present 6 testimony to be sworn at this time. Although this is 7 not an evidentiary hearing, we do like to ask you to 8 be sworn. If you would please raise your right hand 9 if you plan to offer testimony. 10 (Witnesses sworn) 11 MS. JOSEPH: Thank you. 12 All right. I have two witness 13 affirmation forms, Mr. J. L. Minch and Mr. Clay Nance. 14 And I would like to call on Mr. Minch at this time, if 15 you would like to offer comments, to come forward. 16 MR. MINCH: Would you like me to come? 17 MS. JOSEPH: You can sit right up here 18 in front of this microphone would be perfect. Go 19 ahead and -- 20 COMMENTS ON BEHALF OF THE LITTLEFIELD CORPORATION 21 MR. MINCH: First I want to say I've 22 never been in the company of so many lawyers as 23 inexpensively as this next few minutes, and I 24 appreciate very much that opportunity. 25 I'm going make my comments on both of 0006 1 the proposed rule changes at the same time. The first 2 thing is that I'm looking at -- 3 MS. JOSEPH: Wait just a second. If 4 you would state your name for the record. 5 MR. MINCH: Sure. My name is Jeffrey 6 Minch of Austin, Texas. 7 I'm looking at the two applicable 8 sessions of the Bingo Enabling Act, so I'm looking at 9 Section 2001.202 and 2001.207, and I have them here in 10 front of me. I'm going to read them. But they make a 11 clear distinction between criminal activity, which is 12 the portent of the first subsection of both of them, 13 in which a person is convicted of a felony and other 14 transgressions, is unable to hold a license for 10 15 years and in my view is an activity that would also 16 preclude to receiving a license that does not require 17 it to be criminal activity. 18 So as an example, professional gambler 19 could, in fact, be somebody who lives in Austin, 20 Texas, goes out to Las Vegas and plays legal Texas 21 Hold 'Em and derives their living, their profession, 22 as a result of playing legal gambling in another 23 jurisdiction. And so I think the Legislature was very 24 clear about making a distinction between criminal 25 activity that would preclude one holding a license 0007 1 versus gambling activity that was not -- it was not 2 necessitated to be, in fact, illegal gambling. It 3 could, in fact, be legal gambling. 4 I think the language is clear, and I 5 think that the Legislature did it on purpose. And I 6 would point your attention to Section 2001.154 which 7 is the ineligibility requirements for a commercial 8 lessor. And in that particular section, they make no 9 reference at all to a professional gambler or a 10 gambling promoter. But, in fact, they do make the 11 identical distinction, as in the other two sections, 12 as it relates to ineligibility of somebody who has 13 been convicted of a crime. 14 The first point I want to make is that 15 there is a very clear standard that's drawn between 16 illegal gambling and what may be legal gambling, and 17 that a professional gambler does not, in fact, have to 18 be somebody who engages in illegal gambling. 19 From a regulatory vantage point, I have 20 often the analogy that a regulator -- as an example, a 21 game warden -- has a responsibility both to regulate 22 the industry as relates to transgressions against the 23 rules, but also prevent undue influence. And the 24 example that I like to use is that a game warden, if 25 you were legally hunting on your own property, might 0008 1 come look at your rifle, look at the ammunition, check 2 your license, make sure that you had access to the 3 property. And all of those are normal regulatory 4 functions very similar to the licensing implications 5 that we talk about in the bingo business. 6 But at the same time, if there were 7 someone next door who was a poacher, who did not have 8 authority to hunt, perhaps was hunting after dusk or 9 before dawn, was using hollow point ammunition and was 10 using a rifle that wasn't allowed, the regulator would 11 also have the role, the responsibility of keeping that 12 inappropriate influence from influencing the business 13 that he regulates. 14 And I see the Lottery Commission being 15 in a very similar situation, that there is a public 16 policy objective of keeping people who were unduly 17 familiar with high stakes or organized or professional 18 gambling from having an influence on a business, 19 charitable bingo, which in some ways needs that same 20 protection from a poacher as hunting would. 21 I think that the injections -- and now 22 I'm talking about the proposed rule -- I think the 23 injection of a criminal standard in the definition of 24 a professional gambler or gambling promoter confuses 25 the issue, because I think clearly the enabling 0009 1 legislation does not require any illegality at all. 2 And so the idea that you would have to have a 3 conviction seems to be rewriting of the intent of the 4 statute. There is not obligation to have a 5 conviction. You simply could be a professional 6 gambler. 7 I think even if you inserted this, I 8 think that it creates a further body of confusion, 9 because if a person had a single conviction, it would 10 fall under the requirements of the first subsection, 11 that they would be disqualified for 10 years plus the 12 period of time that they were either sentenced or on 13 probation. So they would be precluded from being in 14 the business for the term of their sentence, the term 15 of probation, the term of community service, plus 10 16 years. And so the standard that you set up by having 17 three convictions would, in effect, throw them under 18 the first requirement as opposed to the second. 19 The other point I would say to you is 20 that I think three criminal convictions is simply not 21 a reasonable standard. That's an extremely high 22 standard and, in fact, might entail a person being 23 sentenced to life for being a three-time loser. And 24 so I think as it relates to using the analogy of 25 keeping a poacher from having undue influence in this 0010 1 industry simply because they're a professional 2 gambler, I think what you've done is, you've only 3 gotten professional criminals and very bad people out 4 of the business, so I think the standard has to be a 5 much, much, much lower standard. 6 I want to close by saying that I think 7 that there is a very good reason to prohibit 8 professional gamblers and gambling promoters from 9 holding manufacturers' and distributors' licenses 10 because of some things that, in fact, have occurred in 11 the business. In the last legislative session, House 12 Bill 1156, which was a bill that I would describe as a 13 general clean-up bill for the entire industry, was 14 opposed vehemently and at great expense by folks who 15 had casino gambling interests, and they saw it as a 16 threat, as some kind of an expansion of the business 17 of charitable bingo. 18 Now, I know all of these things purely 19 anecdotally. I have no personal knowledge of it. I 20 didn't bump into somebody from the, you know, Indian 21 gaming casino and he whispered in any ear. But 22 certainly that is, among the lobbying community and 23 among the folks at the Capitol, that's an example of 24 why it's important not to have professional gambling 25 and gambling promoters having undue influence in this 0011 1 area. 2 Let me close by saying that, you know, 3 in any rule, I recognize that it's difficult to 4 anticipate every eventuality. I am intimately aware 5 or at least I'm aware in passing that there is some 6 history here, that, you know, there are some folks for 7 whom this is a particularly passionate issue. I do 8 not share that passion, but I do believe that the 9 industry is well-served by not having people who are 10 professional gamblers and people who are gambling 11 promoters holding these kinds of licenses. 12 Thank you very much. 13 MS. JOSEPH: Thank you, Mr. Minch. 14 Do you have any questions? 15 MR. WASSDORF: Yes, I did have a 16 question with respect to something. There are 17 approximately 10 states that have specific penal 18 statutes that make professional gambling a criminal 19 offense and they define -- most of them define 20 professional gambler essentially the same way, and 21 that is somebody that is -- and these are in states 22 where gambling is illegal -- and it's generally 23 defined as people that bring in and provide an 24 opportunity for gambling and charge people to 25 participate in this activity, et cetera. 0012 1 How do you feel about the situation of, 2 if we were to apply this to people who gamble in all 3 other states, that we would be applying a different 4 standard to those people than they would be -- than 5 would be applied to them in those states? 6 MR. MINCH: Well, you're asking a 7 fairly technical question. I'm not sure that I'm 8 qualified to answer that. But I would say this from 9 the vantage point of the spirit of things: We 10 operated in a state, South Carolina, that did, in 11 fact, have legalized gambling. And I can say that the 12 influence of people who were in that legalized 13 gambling on charitable bingo, as measured by the 14 amount of money that charities could make through 15 charitable bingo, was clearly a negative influence. 16 And so oftentimes what might happen is 17 that somebody might hold a license to be in that state 18 a bingo promoter while simultaneously being actively 19 involved in legalized gambling. And what happened is 20 that the crush of customers coming to the bingo hall 21 would be diverted before, during intermission and 22 after, to spend money on legalized gambling. 23 And so if you said that there was a 24 worthy and noble purpose in funding charities who 25 otherwise might come to the state for their funding, 0013 1 then I think very clearly that the injection of that 2 even legal gambling was very bad for the charitable 3 bingo business, which I think throws you back to the 4 analogy that I make, that I encourage the regulator to 5 view as one of their responsibilities as preventing 6 people from unduly poaching on what clearly is a legal 7 business, which is charitable bingo. So that's one 8 thing. 9 The second thing is, I think we're all 10 caught kind of in the awkwardness of exactly what the 11 statute says, and I think the statute has in certain 12 measure created both the elegant simplicity of its 13 language but also the entanglements with what's going 14 on in the world. Since that statute has been written, 15 there has been a fairly large expansion of legalized 16 gambling in other places. 17 And so just to use the example I made 18 before, Texas Hold 'Em, I picked that just because 19 it's a new game that people are interested in. 20 Probably at the time that the statute was written, 21 there probably wasn't the likelihood that somebody 22 could live in Austin, Texas, and go to Las Vegas and 23 make their living doing that. And, frankly, I find 24 that very innocuous. I worry more about somebody who 25 says, "I'm going to legally, and I'm going to get a 0014 1 distributor's license or a manufacturer's license. 2 I'm going to expand the product offering and mix," 3 which certainly is the history, perhaps for the good 4 of the charitable bingo business, and it's going to 5 get closer and closer and closer to casino gambling, 6 until almost like the rabbit jumping to the lettuce. 7 You know, in third-semester calculus it 8 gets there, and so that I think is a legitimate 9 concern about the charitable bingo business, and 10 certainly that would appear to be the trend. So I 11 think there do have to be some firewalls that are put 12 up that simply say that if you're in the gambling 13 business at this level, that is inconsistent with the 14 elegant simplicity of the charitable bingo business, 15 and the two of them ought not to mix. 16 MS. JOSEPH: I would just like to 17 clarify. Your comments addressed only the bingo rule. 18 Is that correct? 19 MR. MINCH: Let's see now. I'm not 20 sure. One applied to bingo? I thought they both 21 applied to bingo. 22 MS. JOSEPH: No. One is a proposed 23 amendment to a lottery rule. 24 MR. MINCH: Well, yes. Then the answer 25 to your question is, I was only speaking in regard to 0015 1 the bingo. 2 MS. JOSEPH: All right. 3 MR. MINCH: Okay? 4 MS. JOSEPH: Okay. Thank you. 5 MR. MINCH: Thank you very much. 6 MS. JOSEPH: Appreciate your coming. 7 I would like to call on Mr. Clay Nance. 8 COMMENTS ON BEHALF OF GAMETECH 9 MR. NANCE: Good afternoon. My name is 10 Clay Nance. I'm with Hance Scarborough, a law firm 11 here in Austin, and we represent GameTech 12 International, a company based out of Nevada, and is 13 also a bingo equipment manufacturer licensed here in 14 Texas. 15 First off, I want to thank the 16 Commission staff and attorneys and everyone that's 17 worked on this rulemaking project. I know with any 18 rulemaking project, it's very difficult, especially 19 with something like this where the language in the 20 statutory law is very open and vague and, when you try 21 to interpret something like, gets difficult. 22 I know that in this rulemaking process 23 for this particular bingo rule, 402.104, the 24 Commission staff has looked not only at other Texas 25 law, statutory laws, to see how they relate, but also 0016 1 the out-of-state laws nationwide which are very 2 helpful to get an idea, especially since a lot of 3 employees or people that come under these categories 4 under the new rulemaking and these classifications 5 would likely be out-of-state individuals and 6 companies. 7 The rules as drafted and proposed right 8 now, the current version makes sense to us. It's very 9 objective and fair. It's impartial. It is not 10 arbitrary, and it gives the industry as well as the 11 regulators a clear idea of what is expected of them 12 and how they will be regulated from now on as far as 13 obtaining a license and maintaining the licenses. 14 So my comments are very short. We 15 thank you for your efforts and look forward to the 16 Commission adopting these rules as proposed. 17 MS. JOSEPH: Any questions? 18 MR. WASSDORF: No. 19 MS. JOSEPH: All right. Thank you very 20 much, Mr. Nance. 21 Is there anyone else present who wishes 22 to offer comments today? 23 Seeing none, this hearing is adjourned 24 at 2:22. Thank you very much. 25 (Hearing Adjourned: 2:22 p.m.) 0017 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 15th day of December 2008. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/08 20 Firm Certification No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233. 23 24 25