1 1 *************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 March 14, 2000 9 *************************************************** 10 11 BE IT REMEMBERED that the above-entitled 12 matter came on for hearing on the 14th day of 13 MARCH, 2000, beginning at 8:30 a.m., and ending at 14 4:52 p.m., at the TEXAS LOTTERY COMMISSION, 611 15 East Sixth Street, Austin, Texas, and the following 16 proceedings were stenographically reported by 17 Suzanne T. Lane, RPR, CSR for the State of Texas. 18 APPEARANCES 19 CHAIR HARRIET E. MIERS 20 COMMISSIONER C. TOM CLOWE, JR. 21 COMMISSIONER ANTHONY J. SADBERRY 22 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 23 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 24 MR. BILLY ATKINS, CHARITABLE BINGO OPERATIONS DIRECTOR 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 CHAIR MIERS: Calling the March 2 14th, 2000 Lottery Commission meeting to order at 3 this time, and all Commissioners are present. And 4 we'll begin with the "report, possible discussion 5 and/or action on lottery sales and trends, 6 including new game concepts and/or options relating 7 to existing on-line games." 8 Good morning. 9 MS. SMITH: Good morning, 10 Commissioners. For the record, I'm Toni Smith, 11 Marketing Director, Texas Lottery Commission. I'll 12 go over sales briefly first, and then we can go on 13 with the rest of this agenda item. 14 CHAIR MIERS: I was happy to see 15 $17 million bulletin boards. 16 MS. SMITH: Yes, ma'am. We all 17 were. 18 The total FY 2000 sales to date are 19 1,378,272,316.5. This is down 4.18 percent from 20 the FY '99 total sales to date of 1,438,416,539.5. 21 The FY 2000 weekly sales average is 49,224,011.3. 22 This also reflects that 4.18 percent decline from 23 the FY '99 sales average of 51,372,019.27. And 24 that's based on 28 weeks of sales. The difference 25 is between -- across the two fiscal years is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 actually jackpot levels. But we are back up on 2 Lotto. We finally broke our string of bad luck on 3 getting hit every draw. We're at a $17 million 4 jackpot. 5 CHAIR MIERS: Okay. The next page 6 of your materials shows the experience of the 7 individual games, instant tickets, being up 8 12 percent. Is that correct? 9 MS. SMITH: Yes, ma'am. 10 CHAIR MIERS: And that's 11 61.84 percent of the sales -- 12 MS. SMITH: Currently. 13 CHAIR MIERS: -- for our Lottery? 14 MS. SMITH: Yes, ma'am. 15 CHAIR MIERS: And that's generally 16 been the case? The instant tickets have been -- 17 MS. SMITH: Around 60 percent, yes. 18 CHAIR MIERS: Then Lotto does 19 continue to experience the decrease? 20 MS. SMITH: Yes, ma'am. 21 CHAIR MIERS: And the Cash 5's and 22 Texas Million are down, but Pick 3 is up? 23 MS. SMITH: Yes. Pick 3 has managed 24 to stay in there and hold its own through 25 everything. It has a very loyal player base. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 CHAIR MIERS: Okay. Any other 2 questions on current sales or sales trends? 3 MS. SMITH: No, ma'am. I do have 4 with me today, though, Randy Eubanks, who is our 5 statistician that's been working with us on some of 6 our numbers. And in the last Commission meeting, 7 there were some questions that came up that we 8 wanted to not sort of leave hanging, and wanted to 9 be able to address those again. 10 So I'd like to have Randy come up 11 and maybe talk a little bit about the issues. I 12 know Mr. Clowe has some questions -- 13 MR. CLOWE: Thank you. 14 MS. SMITH: -- and wanted some 15 explanation. And we can further that explanation. 16 CHAIR MIERS: Great. 17 DR. EUBANKS: For the record, my 18 name is Randy Eubanks. I'm a statistician in the 19 Department of Statistics at Texas A&M University. 20 The reason I've been asked here -- one of the 21 reasons I've been asked here is to talk a little 22 bit about the 6 hits in a row that was discussed, I 23 think, at the last meeting. 24 And if I can, I'd like to go over 25 and use the overhead for a few minutes to talk WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 about that. Is that okay? 2 CHAIR MIERS: Sure. 3 DR. EUBANKS: All right. I talk 4 pretty loud, so if you can't hear me -- 5 CHAIR MIERS: I think that's a 6 traveling mike. 7 MS. SMITH: You're not getting away. 8 DR. EUBANKS: This is too high tech 9 for me. In academics, we just talk loud. 10 One of the questions I think that 11 was raised at the end of the last meeting had 12 concerned why there were 6 hits in a row on the 13 Lottery at the $4 million level. And in talking to 14 Larry King, Larry said that his answer or his 15 explanation for that was that, boy, the Lottery has 16 really been just kind of unlucky. In many ways, 17 that's sort of the right answer. And it's really a 18 pretty good answer. 19 My personal way that I would -- my 20 personal version of that same sort of thing or 21 saying that same sort of thing, is to say something 22 like rare events happen all the time. And a 23 real-world analogy of something like that would be, 24 let's say you're flying back from San Francisco to 25 Austin, and you've got a layover connecting flight WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 in D/FW. You land; you're walking through the 2 airport to make your connecting flight. 3 And as you walk along, your wife 4 notices somebody sitting at one of the gates that 5 you pass by, and she thinks this person looks 6 familiar. She goes over to them, begins to talk to 7 them, and it turns out that this gentleman that 8 she's talking to was a person who lived next door 9 to her in an apartment in Las Cruces, New Mexico 10 when she was in college there. 11 Now, this guy doesn't live in 12 Dallas, either. He is, in fact, flying from 13 Albuquerque to Philadelphia, and he's making a 14 connecting flight in Dallas as well. Okay, so 15 what's the chance that two people who haven't seen 16 each other in decades would be at the same point in 17 D/FW going different places? And you'd say, well, 18 probably that should never happen. Well, it 19 happened to me. 20 And if we sort of sat down here and 21 we all talked about it, we'd probably all be able 22 to come up with sort of equally bizarre or weird 23 things that have happened to us at some points in 24 our lives, and we'd maybe come to the conclusion 25 that, you know, gee, it's a really small world, or WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 rare events really happen all the time. 2 Now, in a case like I just 3 described, it's kind of hard to actually say, well, 4 what's the probability that these two people meet 5 in this airport at this point in time after, you 6 know, 20-something years. But in a case of 7 something like the Lottery, where we understand 8 things a little bit better and there are sort of 9 fewer variables, we can talk a little bit more 10 of -- quantitatively about what the chances are of 11 really getting this 6 hits in a row. And so I want 12 to talk about that for just a few minutes. 13 The first thing I need to do to try 14 and explain that is to come up with some sort of a 15 number that I can use for the chance of getting hit 16 on any given draw at the $4 million level. And 17 there's various numbers that we could plug in here. 18 But roughly speaking, sort of over 19 the history of the Lottery -- and that's kind of 20 the way I want to think about this, is from a 21 historical point of view -- there have been sales 22 at the $4 million level, something like 5 million 23 plus. And so if we can think about that as being 24 like sort of on the average of about 5 million 25 tickets bought when we're at the $4 million level, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 and there's about 16 or 15.9 million possibilities, 2 about 5 million tickets bought out of the -- about 3 the 15.9 or 16 million possibilities, you take the 4 ratio of those two things, and you get a third. 5 And that says that we expect to get hit at the 6 $4 million level about 1 out of every 3 draws. 7 And you can argue with that number 8 and say maybe it's a fourth or whatever. But a 9 third is a nice number to think about; 3 is an easy 10 number to work with. And I think historically, 11 this sort of holds up, and it's good enough for 12 getting some intuition about what we're going to -- 13 what I want to try and present here. So it's good 14 enough just for intuition purposes. And the same 15 for -- the qualitative conclusion holds if you use 16 other figures besides a third. 17 So now, if we're willing to assume 18 that the drawing behavior is independent in terms 19 of -- if we're willing to assume that the betting 20 behavior is independent from draw to draw, then the 21 laws of probability say that the chance of getting 22 6 consecutive hits is the probability of getting a 23 hit on the first draw times the probability of 24 getting a hit on the second draw; the probability 25 of getting a hit on the third draw, and so on; all WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 the way up to the probability of getting a hit on 2 the sixth draw. And that comes out to a 3 probability of 1 in 729, or the odds of getting 6 4 hits in a row is 1 in 729. 5 Now, here's the way I want to think 6 about this. I want to take the Lotto draws at the 7 $4 million level, and I want to string them all out 8 in a long line and break them up into groups of 6. 9 So I take the first 6, I take the second 6, the 10 third 6, and so on, all the way out across the 11 history of the game. 12 Now, what this number says is, if I 13 look across these sets of six $4 million Lotto 14 draws, I'd expect to have to look through about 729 15 of these things before I found 6 hits in a row. 16 That's what this number means. 17 Now, if I translate that back into 18 actual number of Lotto draws -- I'm talking about 19 sets of 6 -- then we've got 6 times 729 or 4,374 20 draws. So that says we'd expect to have to go 21 through about 4,374 draws before we saw 6 in a row, 22 a lot of draws at the $4 million level. 23 Now, does that mean I really have to 24 go through 4,374 draws before I see 6 hits in a 25 row? The answer to that is yes, on the average, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 but that in this particular case, the average is 2 not a very good indicator. Because this is such an 3 unpredictable event, the average is not a very good 4 indicator of what's actually going to happen. 5 Specifically, if I can just say a 6 couple of technical terms, in this particular 7 setting, not only is the average large, but the 8 standard deviation is large as well. And we know, 9 statisticians know, that situations where the 10 standard deviation is large means that the average 11 is not a very good predictor or indicator of what's 12 actually going to happen. 13 So let me now move and talk about 14 something less technical, where we can maybe get an 15 idea of what really might happen. Here's the way I 16 want to think about this. So let's say I've got a 17 box full of balls. So we've got this box, and I 18 fill this box up with 729 balls, all together. 19 And you can think of each one of 20 these balls as corresponding to a set of 6 Lotto 21 draws. All right? So think of each ball as 22 corresponding to a set of 6 Lotto draws. And 23 there's one winner in here, and you think of that 24 one winner as being the 6 hits in a row. 25 And I'm going to reach in this box, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 and I'm going to pull a ball out. Okay? If I get 2 the winner, then I stop. If not, I put the ball 3 back in, I shake the box up, pull a ball out again. 4 If I get the winner, I stop; otherwise, I put it 5 in, shake it up. And I keep on doing this until I 6 pull a winner out. 7 And what I said a minute ago says 8 that I'd expect to have to do this procedure about 9 729 times before I went out and found a winner. 10 That's what I'd expect to have to do. Well, I did 11 this experiment -- and actually, I made the 12 computer do the experiment for me. And I made the 13 computer do this thing because a computer is 14 tireless. I made the computer do it for me 50 15 times. 16 So the first time it did this 17 experiment, it reached in this box and pulled balls 18 out 700 times before it found the winner, which is 19 right in line with that 729 figure that I was 20 talking about a minute ago. The next time it 21 reached in, it took it 1907 times before it found a 22 winner, which is like twice as much as it did the 23 first time. Okay? The third time it reached in, 24 it found a winner in 326 times, which is about half 25 of what it took the first time. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 And if you'll look down here at all 2 these numbers, here's a case where it found the 3 winning ball in only 7 draws. It found it in only 4 7 draws. Here, it took 9. And here's a whopping 5 3,514 draws before it found the actual winner. 6 Now, let me show you a picture of 7 just what I did. So this is a plot of that table, 8 and you can see things a little bit better here. 9 So what I've listed down here is just the 10 experiment number, and then I'm recording the 11 number of draws it took on each trial of this 12 experiment all the way up to the 50th trial. So 13 you can see the 7 and the 9 here that I showed you 14 before. So there's the 7 and the 9 that I showed 15 before, and here is the 3,514. 16 Now, there's two things to be seen 17 from that table. First of all, 727, the average 18 here, is somewhere along about here. So if you 19 look across here, that's the predicted value, or 20 expected value, 727. And you can see that that's 21 essentially worthless in terms of predicting 22 actually what's going to happen, right, because the 23 results are sort of all over the plot here. The 24 actual outcomes are all over the plot. 25 And you can see the second thing to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 be seen from this is, you can see that sometimes, 2 we found the winner very early, and sometimes it 3 took it a very long time to find the winner. 4 Right? Now, if we translate this back to a 5 6-hits-in-a-row scenario, I'm thinking of these 6 balls as representing sets of 6. So 7 times 6 is 7 42, 6 times 9 is 54, and 6 times 3,514 is about 8 21,000. 9 So this corresponds to finding -- to 10 seeing 6 in a row after about 42 Lotto draws, 54 11 Lotto draws at the $4 million level, and 21,000 at 12 the $4 million level. These two things, you could 13 see in about a year or two; this would take you 14 probably about 600 years. 15 So if you're asking me now, you 16 know, how long do you have to wait from this point 17 in time until you're going to see 6 hits in a row 18 again, well, it could be in the next year or two; 19 it could be next month; but it could be 600 years 20 or so. All right? So I won't be there for the 21 last one. 22 So I guess to summarize what I've 23 said, is that at this point in time, there's 24 probably been a 150 or so draws at the $4 million 25 level. So the fact that you've seen 6 hits in a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 row at this point in time, it's unexpected; but I 2 think, given what I've shown you, it's really not 3 all that unusual. 4 CHAIR MIERS: Questions? 5 MR. CLOWE: Let me just think for a 6 minute. 7 That was an excellent presentation, 8 and it is very helpful. I guess the question that 9 was brought up in our discussion, which I'd like to 10 hear your comment on relative to what you've told 11 us, is, the increased population in this state and 12 what its impact is on these odds relative to 1992 13 and the year '99, 2000. 14 DR. EUBANKS: The answer is that 15 population really is not what's governing what's 16 going on here. It's only sales. So if you had to 17 say that the chances of 6 hits in a row now are, in 18 some sense, smaller, at this point in time, if you 19 think that sales are down at the $4 million level, 20 that appears to be the case. 21 MR. CLOWE: As long as the ticket 22 price remains at $1 and it takes $1 to play. 23 DR. EUBANKS: Right. 24 MR. CLOWE: Now, if the game gets 25 more popular and it gets more popular so that more WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 people are playing, does the scenario you gave us 2 theoretically remain the same? 3 DR. EUBANKS: If the game gets more 4 popular and more people are playing, then the 5 chance of getting hit on any given draw increases 6 because there's more tickets being sold. 7 MR. CLOWE: All right. 8 DR. EUBANKS: Right? And so in that 9 case, the chance of 6 hits in a row, because the 10 odds of getting hit on any given time go up, 11 increase, then the chance of 6 hits in a row goes 12 up as well. 13 MR. CLOWE: With the matrix 14 remaining at 50 percent. 15 DR. EUBANKS: Right. Exactly. 16 MR. CLOWE: You've got to keep the 17 matrix and the price the same. 18 DR. EUBANKS: Right. So the more 19 popularity -- the more people that buy tickets 20 means you're going to get hit more often. And the 21 scenario -- because we've seen it, for example, 22 we've seen the 6 hits in a row, and then we've seen 23 whatever it is, the 7 rolls now. And those sort of 24 things can happen, but the hits go up. The number 25 of expected hits in a row goes up as sales WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 increases, and the number of rolls goes down. 2 MR. CLOWE: So the increased 3 population in the state could have an impact if, 4 for example, you have a state that has 20 million 5 people, as opposed to a state that has 5 million 6 people. 7 DR. EUBANKS: Sure. Absolutely. 8 MR. CLOWE: And that's what you've 9 got maybe in New York and Massachusetts, where the 10 popularity of the game is such, for whatever 11 reason, people say, well, I'd like to play this 12 game. It has a larger market to sell to. 13 DR. EUBANKS: Sure. 14 MR. CLOWE: But how that market 15 buys -- 16 DR. EUBANKS: Right. 17 MR. CLOWE: -- has a lot to do 18 with -- 19 DR. EUBANKS: Right. Absolutely. 20 So your chances of getting hit certainly is going 21 to be a function of what your population is, but 22 only in the sense of what the sales is. And the 23 sales is always going to be in proportion to how 24 high the population is. But that can change, 25 depending on the popularity of the game. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MR. CLOWE: So if people don't buy a 2 ticket, they still can't win. 3 DR. EUBANKS: That's always true. 4 Absolutely. 5 CHAIR MIERS: And let me ask the 6 question just a little bit differently, because 7 what we were told, the history of the game is that 8 you come into the state and you design a matrix. 9 And one of the factors you consider is the 10 population. 11 Our Lotto game matrix was designed 12 back in '92, when the game was created. If that 13 game were being brought into Texas for the first 14 time today, what impact would the population have 15 in designing a matrix that would make sense today? 16 DR. EUBANKS: You want the odds for 17 the big jackpot level to be high enough to where 18 you can expect rolls to generate large jackpots and 19 increase sales. So if the population in the state 20 is higher, and that has in some way, through the 21 popularity of the game or whatever, translated into 22 larger sales or it translates into some given level 23 of sales, then you want the game matrix to be such 24 that the odds are high at -- sufficiently high at 25 the big jackpot level to where you get multiple WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 rolls and generate big jackpots. 2 I don't know if that answers your 3 question, but for larger states, you need a 4 bigger -- you need larger -- I guess this is the 5 way I would answer: For larger states, you need 6 bigger odds at the big jackpot level. So higher 7 populations should translate in some sense into 8 larger odds at the big jackpot level. And that's 9 the answer. 10 CHAIR MIERS: Okay. And that would 11 probably explain why most states, as time has 12 passed and populations have grown, have revised 13 their games. 14 DR. EUBANKS: Right. Because 15 they're getting hit more often than they really 16 want to. And so increased population -- although 17 in this particular scenario, that's not the answer 18 for the 6 hits in a row -- the increased 19 population -- 20 CHAIR MIERS: Right. 21 DR. EUBANKS: -- is not the answer 22 for that. But in general, one would believe that 23 as population goes up, you would get hit more often 24 just because more people are buying. 25 CHAIR MIERS: So if you were -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 DR. EUBANKS: If the popularity of 2 the game had stayed constant -- let's say it that 3 way. If the popularity of the game had stayed 4 constant over the entire history of the Lottery, as 5 population went up, you would have also seen sales 6 go up accordingly, driven partly by population, and 7 you would be getting more hits than you wanted. 8 And that would then indicate that you -- one way to 9 revolve that problem is to change the game in some 10 fashion to where you have higher odds at the big 11 jackpot level. 12 CHAIR MIERS: And I guess what 13 you're saying is that we could have experienced the 14 6-run or 5-run experience the first week we 15 started. 16 DR. EUBANKS: Absolutely right. 17 CHAIR MIERS: And it was random. 18 DR. EUBANKS: Absolutely. 19 CHAIR MIERS: However, if you were 20 creating the ideal game today, you would certainly 21 take the population of the state -- 22 DR. EUBANKS: Right. 23 CHAIR MIERS: -- into consideration 24 as a factor. 25 And the other question I had, just WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 intuitively -- please don't laugh if this is a 2 stupid question. 3 DR. EUBANKS: I'll laugh ahead of 4 time and then figure it out later. 5 CHAIR MIERS: Good. 6 But it seems like if you have more 7 people playing, as opposed to fewer people buying 8 more tickets, that you are more likely to get hit 9 because you have different people picking different 10 numbers and, therefore, a greater likelihood the 11 numbers that are selected would get hit. 12 DR. EUBANKS: Right. That's 13 probably true, because you get a more uniform 14 coverage that way. That's right. So more people 15 playing, instead of the same people playing more, 16 probably translates into more uniform coverage. 17 So if I'm talking about sales of 18 like the 5-point-whatever-million level at the -- 19 if I'm talking about sales of like about $5 million 20 or $4 million, whatever you pick at the $4 million 21 level, if it's a lot of different people that are 22 buying those tickets, then that really sort of 23 translates into roughly like about 4 million 24 numbers, or sets of numbers, that are being bought, 25 which means more uniform coverage. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 And so that actually increases the 2 chance of getting hit, as compared to fewer people 3 who are buying like all -- you know, just birthdays 4 or something like that, or playing the same number 5 multiple times or some minor variation of it, which 6 translates into sort of more repetition and less 7 chance of getting hit. 8 MR. SADBERRY: One of our speakers 9 last week -- last meeting, at least, made some 10 indication that it typically is the experience of 11 most lotteries that at some point in time, their 12 Lotto game will change, through, I suppose, 13 market-driven-type factors. 14 And part of your presentation makes 15 the assumption concerning the popularity of the 16 game, whether or not it stays constant, increases, 17 or decreases. Is there any data that you can 18 relate to in your field of study that might speak 19 to the issue of what causes the popularity of the 20 game to fluctuate? 21 DR. EUBANKS: No. I don't really 22 have that information. I don't really know the 23 answer to that question. I think it's driven by a 24 lot of factors, that there's a lot of variables, I 25 think, involved in answering that question. And I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 really couldn't speculate, to be honest. 2 CHAIR MIERS: That's a question 3 that -- I think that is a very good question and 4 maybe a combination of the two and similar to a 5 question I have, which is that the one comment we 6 heard last fall was, oh, you're changing the game 7 to disadvantage the players. 8 And quite the contrary is the case. 9 If we have players whose demonstrated behavior is 10 that they want to see, routinely, a higher jackpot, 11 then change to allow that higher jackpot to exist 12 is to the players' benefit. 13 MS. SMITH: Yes, ma'am. And I think 14 our representatives from GTECH can answer that 15 question within a presentation that they would like 16 to submit to you today. 17 MR. SADBERRY: Okay. 18 Thank you. 19 DR. EUBANKS: Sure. 20 CHAIR MIERS: Very interesting. 21 Now, don't go too far. We might have other 22 questions. 23 MS. CLOUD: Commissioner, I'd like 24 to say that Dr. Eubanks has been very much a part 25 of our exploring options for the Lottery game in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 the last couple of weeks. He has been very 2 beneficial and supportive of the Lottery, and I 3 want to thank him personally for all of his help. 4 CHAIR MIERS: Thank you, Doctor, on 5 behalf of the Commission. 6 Okay. Toni, I do understand that we 7 have a presentation to be made by yourself in 8 cooperation with GTECH. And should we move to that 9 at this time? 10 MS. SMITH: Yes, ma'am. In the last 11 Commission meeting, as we talked about the 12 continued decline of Lotto Texas, we were asked to 13 look at some options or some alternatives for our 14 on-line product line. And we have worked with 15 Randy Eubanks and GTECH and put together a 16 presentation that shows some options and what we 17 would like to make as a recommendation as a 18 possible enhancement to the Lotto game. 19 So we have representatives from 20 GTECH here today that will come and do a 21 presentation. 22 CHAIR MIERS: Right. Mr. King? 23 MR. KING: Good morning, 24 Commissioners. For the record, my name is Larry 25 King. I'm the Account General Manager for GTECH WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 Texas. I have with me, on my left and to your 2 right, John Caddigan, who is our Vice President of 3 Game Scape, which is our marketing department for 4 GTECH; and I believe behind me, Marty Goldman, who 5 is our Director of U.S. Marketing for Game Scape. 6 You may recognize Marty. He was here about a year 7 and a half ago, I think, for a presentation on 8 on-line games. 9 What I'd like to do is, John is 10 going to give a brief overview of Lotto games 11 across the United States and maybe a brief history, 12 and then we will get into some more specifics with 13 the presentation with Marty. 14 And it looks like our projector is 15 working. I'm going to turn you over to John 16 Caddigan. 17 MR. CADDIGAN: Thank you, Larry. 18 And good morning, everyone. For the 19 record, my name is John Caddigan, Vice President of 20 Marketing for GTECH Corporation. 21 There were some interesting 22 questions up front. I'm going to, as Larry said, 23 give a brief overview of the state of Lotto in the 24 United States today, its condition, how we got 25 there, basically, and what it means for Texas. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 It's sort of a table setting discussion for the 2 main body of the presentation. 3 It's probably not surprising to most 4 in this room, but the condition of Lotto in the 5 United States today is not all that well. There 6 are some states whose games are performing a little 7 bit better than others. In a medical sense, I 8 would equate the Lotto game here in Texas as having 9 a cold, while there are others in the United States 10 that are in dire straits and perhaps on life 11 support. 12 Those games that are generally doing 13 well are the games that are able to spike 14 significant jackpots, either by themselves as state 15 games or, as I'm sure you're aware of, these 16 multi-state mega-jackpot games that occur 17 frequently, in one in particular, a recent 18 Powerball with a $100-million-plus jackpot. 19 How did we get here? Why is Lotto 20 in this condition? I'm going to talk about then 21 versus today, "then" being 1985, if we want, for a 22 reference point, to "today" obviously being this 23 year. 24 Lotto, years ago, was the game in 25 town. It was basically the only game. Back in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 mid '80s, when I joined GTECH, there were a few 2 states that had what is called a daily numbers 3 game. The Pick 3 game here in Texas would equate 4 to that. 5 But basically, Lotto was the game 6 that people identified with the Lottery. Back in 7 that time frame, instant was still not a problem 8 child, but it wasn't the game it is today. And 9 today when you look at Lotto, it's one product 10 offered -- it's one of many offered -- it's lost in 11 the shuffle on occasion with on-line products. 12 Years ago, a jackpot of $4 million, 13 $7 million, $10 million was a significant jackpot. 14 It made news. Today, a jackpot has to reach 15 $40 million, $50 million in some states; and in 16 some states, $100 million, to get that exponential 17 lift in sales. 18 Years ago, Lotto was a weekly game. 19 It still is today, obviously, but people were 20 comfortable with playing a lottery game on a weekly 21 basis. Today, players are drawn to those games 22 which I call high-draw frequency games, such as 23 instant, such as video, such as Keno, and they're 24 attracted to those games which provide that level 25 of instantaneous satisfaction. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 Lotto is still a weekly game. I 2 like to somewhat refer to it as the game our 3 fathers played: "Here's your dollar, give me my 4 ticket; I'll go home and watch TV on Saturday night 5 to see if I won." It can be described as a fairly 6 boring gaming experience. 7 So what is successful today? You've 8 got those mega-jackpot games that attract attention 9 across state borders within states, and you've got 10 these high-draw frequency games in the business, 11 the video, the Keno, the instant games. Those are 12 the successful lottery products in America today. 13 When I look at the Lotto Texas game, 14 it's somewhere in the middle. It's not a game in 15 dire straits, by any stretch of the imagination. 16 It is still, by the way, one of the premiere Lotto 17 games in the United States, one of the top three or 18 four games consistently, on a per capita basis. 19 What I feel that game needs is to 20 move a little bit closer. We can't get that to be 21 drawn, obviously, due to its nature, on a 22 repetitive, quick basis; but move it towards 23 creating an opportunity for larger jackpots, get 24 that $80 million, $90 million, $100 million 25 occasional jackpot. That's what we're talking WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 about applying to this particular game. 2 The last thing I want to touch on 3 here is the war that Texas is losing currently on 4 its borders. There are, on any given week, in my 5 opinion, hundreds of thousands of dollars 6 traversing the borders into Louisiana and into New 7 Mexico, playing the multi-state game which I'm sure 8 you're aware of, called Powerball. And recently, I 9 dare say, that financial representation probably 10 approximated millions of dollars crossing those 11 borders to pay for the good causes supported by 12 those states. 13 Further to that point is the 14 possibility that at some point this year, or 15 certainly within 18 months, you will see in those 16 states a second mega-jackpot multi-state game. If 17 someone were to have asked me three years ago, 18 would we ever see a state running two multi-state 19 mega-jackpot games, I would have thought the person 20 daffy. 21 That will occur. So on your 22 borders, in New Mexico and Louisiana, you will see, 23 again, a second multi-state game which is being 24 designed solely for the purposes of spiking those 25 mega-jackpot values. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 Our recommendation will be presented 2 here in a moment. It's one that we've teamed up on 3 with the Lottery, GTECH, and Dr. Eubanks. And we 4 feel it is a pretty good recommendation for your 5 consideration. 6 With that, if there are any 7 questions, I'll entertain those, certainly. 8 CHAIR MIERS: One question I wanted 9 to ask was, if you succeed in spiking interests 10 with higher jackpots, is there any evidence one way 11 or the other concerning those same players' 12 increased interests in the lower jackpots? In 13 other words, does somebody who plays in the higher 14 jackpots then have a greater likelihood of playing 15 in the lower jackpots, or not? 16 MR. CADDIGAN: Okay. Let me see if 17 I can answer that question. I believe the question 18 is, if I'm an occasional player in Texas here and I 19 see a jackpot in a couple of months, hopefully, of 20 $70 million or $80 million, and I go and wager a 21 dollar, I believe the question is, what's the 22 likelihood of myself continuing to play? 23 CHAIR MIERS: Even though the 24 jackpot -- 25 MR. CADDIGAN: Drops down. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 CHAIR MIERS: -- goes back -- 2 MR. CADDIGAN: What you'll see is 3 some -- there is, no doubt, evidence in sales 4 analysis that supports that once -- that you will 5 take -- some of those players who come at that 6 particular level, they'll stay with you. There's 7 no doubt about that. 8 But over time, the trend line will 9 continue to slope back down. And as you raise 10 those jackpots, incidentally, the threshold of 11 entrance will get larger and -- or higher and 12 higher. But yes, the answer is that some players 13 will stay for a while and probably trail off. 14 MR. CLOWE: You've commented on the 15 interest from players when jackpots spike. Would 16 you give us a comment on the reaction of players 17 who pick 3, 4, and 5 out of 6 numbers and how their 18 interest is influenced by that? 19 MR. CADDIGAN: By the jackpot? 20 MR. CLOWE: By what they earned for 21 picking 3 through 5 numbers. 22 MR. CADDIGAN: I'm not sure I 23 understand the question, sir, but if a jackpot -- 24 MR. CLOWE: Let me restate it. 25 MR. CADDIGAN: Okay. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MR. CLOWE: People who play the game 2 and pick 3, 4, or 5 numbers out of 6, are they 3 positively influenced by receiving -- not earning, 4 that was a bad word -- by receiving more money? 5 What piques their interest? Is it more money? Is 6 it just winning at that level? 7 MR. CADDIGAN: I would say certainly 8 both. To a degree, the answer lies in both. The 9 winning experience is certainly what players will 10 talk to you about. And how we can get those 11 subsidiary prizes at higher levels, of course, is 12 part of the science of coming up with a proper 13 matrix that gives you a good jackpot and good 14 subsidiary prizes. Certainly, when people win, 15 they're happy. I'm sure that they would rather win 16 5,000 versus 2,500, or 10,000 versus 5,000. 17 But does that answer your question, 18 sir? 19 MR. CLOWE: Yeah. And what I wanted 20 to get to, and I think you're there, is the answer 21 that it's not only the large prizes, but when a 22 person picks 3, 4, or 5 numbers, the money they 23 receive is a larger amount. They like that, too. 24 MR. CADDIGAN: Yes. 25 MR. CLOWE: The complaints I get WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 from players that I talk to, are, "The jackpots 2 aren't big enough, and we don't win enough when we 3 pick 3, 4, or 5." 4 And I'm wondering, in your mind, how 5 that balances. I think it goes together, based on 6 what people tell me. And maybe you can clarify 7 that. 8 MR. CADDIGAN: I think that's an 9 accurate representation, not only of what people 10 are telling you, but what players are telling us 11 across the country when we talk to them through 12 research vehicles about Lotto. It's the winning 13 experience: "I'm not winning enough at lower 14 levels, and I want larger jackpots." 15 MR. CLOWE: This is a question 16 that's not related to anything you said before, but 17 it's something that also I hear from time to time 18 when I talk to players. And you have nationwide 19 experience. 20 Would you give a comment on how 21 players feel about where the money that is put into 22 these games goes, and what feeling they get from 23 that, good or bad, about knowing where it goes? 24 Do I make myself clear? 25 MR. CADDIGAN: In terms of the good WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 causes? 2 MR. CLOWE: Yes. 3 MR. CADDIGAN: One man's opinion, 4 sir. 5 MR. CLOWE: Based on your nationwide 6 experience. 7 MR. CADDIGAN: Based on my 8 nationwide experience. Yes, of course. 9 I would have to say that most people 10 do not play Lotto -- I will go one further -- the 11 majority, a significant proportion of people, do 12 not play Lotto because of the causes to which the 13 proceeds are directed. They play for the 14 entertainment value. 15 Certainly originally, that was the 16 case; it's not quite the case today when we talk 17 about entertainment at Lotto. They seem to be not 18 together. But they play for the chance. The 19 dream, certainly, is part of it, the chance for a 20 winning experience. 21 But most people play Lotto simply 22 for a shot at the jackpot. I've met hardly anyone 23 who has ever told me they played Lotto for the 24 chance of winning $3,000 or $4,000. 25 MR. CLOWE: And you haven't had WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 anybody tell you that they play Lotto because it 2 goes to the school fund if they don't win? 3 MR. CADDIGAN: I'm sure, over 15 4 years, I've had somebody tell me that, sir. 5 MR. SADBERRY: This might be part of 6 your bailiwick, part of your presentation, or 7 someone else is to cover this. I'm taking it -- 8 I'm asking this, rather, if there is a database, or 9 at least a marketing philosophy or perception, that 10 the peak or spike in the interest that's created by 11 the larger jackpots that would increase playership 12 and popularity of the game has some dynamic 13 relationship to it; if there is a perception -- if 14 there is a perception, and I say "if" -- that 15 decreasing the odds of winning might disaffect some 16 players and cause some players not to be attracted 17 to the game, that the dynamics show that the 18 potential for increasing the popularity of the 19 game, the higher jackpot, would more than offset 20 any perception of potential loss of interest in the 21 game. 22 I'm asking if that's something that 23 you have addressed, if it's something that you can 24 have -- relate some data to. 25 MR. CADDIGAN: The difference WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 between what will be perceived and what will happen 2 in the marketplace is based on two conditions, one 3 decreasing the matrix, and one increasing. 4 MR. SADBERRY: Well, the perception 5 that increasing the matrix to some perception -- 6 the way you get the higher jackpots is, you don't 7 get as many hits. And, as some people would, in 8 the vernacular, say, "You make it harder for us to 9 win." 10 MR. CADDIGAN: Right. 11 MR. SADBERRY: That might cause a 12 downturn, I'm saying, if that is a perception, but 13 the increase in the interest of the game to those 14 who are interested in the higher jackpot more than 15 offsets the chance of losing players. 16 MR. CADDIGAN: Yes. I believe that 17 would be the case. Furthermore, if I'm a Lotto 18 player -- let's take the average Lotto player, not 19 somebody who is contributing $2 a week, in other 20 words, in both draws, but just the average -- 21 somebody who is coming in a couple of times a 22 month. 23 He or she may respond at a higher 24 matrix, "Well, they're making it harder for me to 25 win. I might not play as much." And even some WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 hardcore players might not play as much. I would 2 say that that is offset, certainly, by those who 3 stay on regularly and are participating in the 4 higher jackpots. 5 I would also say that those lapse 6 players -- and let's classify them as "lapse" -- 7 would come back to the game, unfortunately not at 8 base levels and building levels, but would come 9 back when it spiked to a level that's appropriate 10 for them to come into the game. 11 So I think overall, the answer would 12 be to the positive, that certainly, those who stay 13 are participating, and they will benefit. And 14 those who may drop out because they perceive a 15 negativity to such a decision will come back, not 16 at base level, but will come in when that figure is 17 hit that lights their fire. 18 CHAIR MIERS: Well, if I understood 19 our earlier lesson, though, looking at this from 20 the viewpoint of an individual player, the message 21 that person needs to hear is Dr. Eubanks' message, 22 which is, rare things happen all the time. So 23 what -- from an individual player's standpoint, the 24 odds don't make a difference because a person could 25 be lucky and could not be lucky. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MR. CADDIGAN: Right. If I have not 2 met too many people who are concerned as to where 3 the proceeds go, I've probably met as few, if not 4 less, that are concerned about the odds of the 5 game. It's something to talk about on occasion, 6 but they will ignore that when a jackpot is at a 7 particular level. 8 CHAIR MIERS: That's a good thing to 9 remember when you hear about all these coke cans 10 strewn all across the state and how you have to 11 pick the right can. Then if you look at it from 12 the individual's standpoint, it really is the luck 13 of the draw. 14 Okay. Questions? Any further 15 questions? 16 MR. CADDIGAN: Okay. We're going to 17 turn it over to the main body of presentation, to 18 Marty Goldman. 19 CHAIR MIERS: Will it be okay if we, 20 Mr. Goldman, interrupt you as you go -- 21 MR. GOLDMAN: Absolutely. 22 CHAIR MIERS: -- if we have 23 questions? 24 MR. GOLDMAN: Actually, I was going 25 to suggest that. We have a lot of information to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 cover, so as I go through on individual slides -- 2 you also have a hard copy in front of you -- feel 3 free to interrupt and ask questions. 4 For the record, my name is Marty 5 Goldman, Director of U.S. Marketing for GTECH. And 6 what we've done so far, Dr. Eubanks has given us a 7 great overview of the existing game and why what's 8 happening is happening. Mr. Caddigan has given us 9 an overview of the industry as a whole. And it's 10 rather an ill state, but Texas, in comparison to 11 the overall industry, is doing okay. 12 But what I'd like to go through is a 13 recommendation of where do we go from here, and 14 give some data to support that. 15 MR. KING: Rare occurrences do 16 happen all the time. My computer went to sleep, 17 and I'll have it up in just a matter of seconds. 18 CHAIR MIERS: We only wish that was 19 rare. 20 Well, Marty, one thing that we might 21 take a minute or two to talk about while we're 22 getting the computer up, Commissioner Clowe 23 mentioned the lower level prize categories. And of 24 course, our greatest number of winners are the ones 25 that are able to select 3 of the 6 balls. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MR. GOLDMAN: Correct. 2 CHAIR MIERS: And right now, that 3 prize is a $3 prize. And if I hear any comment, 4 most frequently, it's that I win, but I only get 5 $3. So looking at one of your charts, there's 6 nearly a million people who have won at that level, 7 I take it, out of 52 weeks. So making those 8 million people emissaries of good will would be a 9 real goal for us, wouldn't it? 10 MR. GOLDMAN: I think that -- to 11 answer your question, if I may, that when creating 12 a game design or the optimum game for a particular 13 jurisdiction, obviously, the population that we've 14 talked about quite a bit is critical in developing 15 that, but trying to prioritize the needs of the 16 player, understanding you can't do everything. You 17 can't create the optimum lower tier price 18 structures and always have great jackpots. 19 So you try to prioritize that. 20 Based upon -- in the context of the presentation, 21 we'll talk a little more specifically, but based 22 upon what players have told us in the research the 23 Lottery has conducted over the last year, we've 24 tried to do just that. 25 And Director Cloud has been very WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 specific in the lower tier prizes that, "I want to 2 give these people back something more," while at 3 the same time trying to understand that the need to 4 get a higher jackpot roll is something critical. 5 So what we have is a matrix designed to do just 6 that, give them back more than the $3, and, in 7 fact, have the Match 3 prize, the Match 4 prize, 8 and the Match 5 prize give them back something 9 more. 10 To John's point earlier, they truly 11 do play for the jackpot, but for the most part, as 12 you said, the more likely occurrence, if we can get 13 back to Dr. Eubanks, is that they will win a little 14 something; they will win a chance to win $3 or, in 15 our recommendation, $5. 16 And that does have positive 17 reinforcement when they go back to make that 18 decision. Once again, it's something in the back 19 of their mind. It's not purely jackpot driven: 20 "Okay, I might still get some." So this is an 21 important piece of the pie. 22 And it's show time. I'll have to 23 speak a little quicker now. 24 Okay, obviously, we're here to talk 25 about a Lottery review. What I'd like to start WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 off -- and I believe there was an issue last time 2 in terms of an expected prize pool versus actual. 3 We show this for a reason, so for comparison 4 purposes later on, this is what statistics would 5 expect our prizes to be. 6 Now, what this would mean, the 7 11 million is a projected average prize won on an 8 annuitized basis. Let's be clear: That's 9 annuitized, not a cash value. 10 And these, the Match 5, Match 4, and 11 Match 3 prizes, obviously being -- the 5 and 4 are 12 pari-mutuel, or what the projected numbers would 13 be. Now, if we go to the next slide, let's see 14 what we've seen over the last year, over the last 15 52 weeks: 404 draws, the average prize has been 16 lower than projected. Once again, this is 17 annuitized. 18 The Match 4, the Match 5 -- the 19 Match 5 has actually been a little higher, the 20 Match 4 a little lower, and the $3 is basically a 21 fixed prize. These are cumulative winners, but 22 what you can see from the projected -- we've 23 actually, because sales have been lower, actually 24 had a few less winners. 25 Let's talk about the trending again. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 It's no surprise to any of us. Now, what this does 2 is give you, on a year-by-year basis -- you can see 3 our peak up here. Now, the blue is average sales; 4 the yellow is representing average jackpot. We 5 were up to the $15 million range up here, back 6 through '94; had a slow decrease and a high 7 jackpot, I believe, or two, in '97, to pop us back 8 up. But we've had a steady decrease throughout 9 2000. 10 One thing I'll refer you to, as John 11 alluded to in his presentation, there is a separate 12 insert sheet in your packets, Commissioners, that 13 shows you lottery throughout the United States 14 right now. The numbers you see are on a per capita 15 basis, so it's evaluated fairly, based on 16 population. You see the trending is very symbolic. 17 This is something that is not indigenous 18 specifically to Texas. It's the game as a whole 19 right now. 20 Now go forward. Now what we've done 21 is try to track this on a jackpot-by-jackpot-level 22 basis, the 4 million pretty obviously seeing a 23 trend. So what that's showing you -- I believe, 24 Commissioner, you mentioned earlier the base-level 25 jackpot we were talking about. This is your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 base-level jackpot. And you see that there's a 2 loss here as we go through. 3 $10 million jackpot, actually a 4 little bit more pronounced. And the reason for 5 that is, while we say 10 million on the average, 6 because our rolls have been lower -- our rolls have 7 actually been lower. So we haven't rolled as high 8 from the 4-million level as we have before. Then 9 we have a little drop in sales over the last few 10 years. 11 So we move forward 23, when we think 12 once we start getting up to that level, maybe it's 13 not going to be as bad. But even at that level, we 14 see a drop. And then finally, at the 30, and I 15 hate to say it, but if in '93 -- because that was a 16 very different world, and it is seven years ago -- 17 let's even throw that one out; we still have a 18 little bit of an overall trending drop. 19 Now, if I can, this is, again, quite 20 typical of the industry. There's something that we 21 coined, called the "jackpot indifference syndrome." 22 And basically, all that means is, when you hit a 23 plateau the next time, sales traditionally are a 24 little bit lower that the next time. That's what 25 you're seeing here, also. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 All the other issues, in terms of 2 population, giving players something more, even the 3 big mega-jackpot games of Powerball, Big Games, the 4 ones who have had the large jackpots, when they've 5 hit that magic $100 million number, it's been a 6 little bit less. It's not as much of a high for 7 players as it used to be. 8 CHAIR MIERS: On the average weekly 9 per capita sales freestanding exhibit, there's a 10 footnote about New York that says it includes Lotto 11 and local Lotto. 12 MR. GOLDMAN: Right. 13 CHAIR MIERS: What does that mean? 14 MR. GOLDMAN: I'll get into that a 15 little later in the presentation. We have specific 16 examples for both New York and Florida. As New 17 York made a change to their game last year, they 18 did another change, which may have hurt their Lotto 19 sales a bit. But if you wouldn't mind deferring 20 until -- 21 CHAIR MIERS: That's fine. 22 MR. GOLDMAN: Lotto. Now, players 23 dictate, as I alluded earlier, what we do to our 24 game. Players, again, always want the best of 25 both. They want a 200 percent payoff, and they WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 want high jackpots, as they should. 2 But the Lottery has conducted 3 research over the last nine months. In August of 4 '99, there was Lotto research conducted, and most 5 recently, in January and February, there was some 6 review about multi-state possibilities. These were 7 focus groups of three cities, both sets of 8 research. It tested both the players and 9 non-players. 10 Now, again, not very surprising, 11 projected spending is jackpot driven, and a 12 question we had earlier, Commissioner, about -- in 13 this particular research, not significantly 14 dependent upon lower tier prizes. And when players 15 are asked, they may say a little bit of both. 16 Jackpots will drive sales, but the lower tier 17 prizes are very important for the long-term health 18 of that game. Give them some reward. Give them a 19 healthy reward for coming back. 20 But their primary reason for playing 21 is going to be that jackpot. Most of them, as 22 we've stated earlier, don't focus on the odds of 23 the game. Now, it seems somewhat arbitrary. How 24 can they not care? But research has told us over 25 time that the high tier odds, particularly, are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 varying degrees of infinity. 2 Now, you'll see a recommendation 3 today to take the overall jackpot up substantially. 4 But in comparison to some of the mega-jackpot games 5 that are around, it's a drop in the bucket. We'll 6 get into those numbers later. 7 As stated, Madam Chair, the $3 prize 8 is not meaningful. We have a solution to that. 9 Then the players are discouraged that they're not 10 as high as they used to be. And again, I think 11 that the sales trending that we sent earlier 12 discusses that. 13 Questions? 14 CHAIR MIERS: Is there any 15 statistical data on what would be a meaningful 16 prize as compared to the $3? 17 MR. GOLDMAN: The research didn't 18 get into a specific jackpot level. They just made 19 general statements about how they're just not where 20 they used to be. 21 MR. CLOWE: Okay. Before you go to 22 the next slide, you very quickly said the Lottery 23 had done this research, and I think it was this 24 last year. And the title up there is Recent Texas 25 Player Research. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 Now, you're presenting this. Could 2 you give us a little more information about the 3 validity of this research or where this data is 4 coming from -- 5 MR. GOLDMAN: Sure. 6 MR. CLOWE: -- so we know how to 7 evaluate it? 8 MR. GOLDMAN: Good question. 9 In August of '99, research was 10 conducted specifically on the Lotto game. It was 11 conducted in three cities: San Antonio, Amarillo, 12 and Dallas. Nine to ten -- there were six total 13 focus groups, two in each city; nine to ten 14 respondents in each group, ages 18 to 54. It was a 15 mix of lapsed and current players in each of those 16 groups. 17 They were asked specific questions 18 at that time on a couple of different Lotto 19 concepts. Because they were focus groups, they 20 were qualitative in nature. So there's no 21 quantitative feedback I can give you, as in, they 22 like this, to this percent; and they like that, to 23 that percent. It was specifically trying to probe 24 them for likes and dislikes. And at that time, 25 certain concepts, which, frankly, we're not going WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 to recommend, were evaluated for what they liked 2 going forward. 3 Now, that was the Lotto research 4 conducted last summer. Most recently, research was 5 conducted in January and February of this year that 6 evaluated several multi-state concepts. That also 7 was in three cities: six individual focus groups 8 in Dallas, Houston, and El Paso; nine to ten 9 participants, again, 18 to 54 years in age. And 10 that evaluated lapsed players and current players 11 separately for particular concepts and their 12 viability going forward. 13 That was, again -- that was 14 specifically for some multi-state -- a big part of 15 the multi-state was higher jackpots. So that 16 information is transferable. And that's all we 17 transferred from the Big Game. I'm sure there will 18 be specific copies of the complete research results 19 that the Lottery would have available. 20 MR. CLOWE: Okay. Now, you answered 21 my question in regard to that. Help me understand 22 why, when changes were considered by the Lottery 23 Commission fairly recently, there was, in my 24 opinion, an overwhelming desire on the part of the 25 individuals who were players, asking that the game WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 not be changed. 2 MR. GOLDMAN: That's an excellent 3 question. 4 The specific recommendation in mind 5 at that point was something called a bonus ball. 6 And as we get into later, I'll describe -- that was 7 an option that New York did implement. It adds 8 several layers of tiers of prize payouts and, 9 frankly, complexity to the game. 10 Players said while it did give them 11 the higher jackpots and also, overall, some lower 12 odds, I think the complexity issue overcame the 13 positives that it gave. And when we talk again 14 about priorities and game design, I think one thing 15 there, we may have been trying to do too much, too 16 soon. And I think it was an option to pull back a 17 little bit, make the changes a little clearer, a 18 little simpler, and concentrate on what's the 19 priority for the players. 20 And also, we have more data now. 21 That was back in August. New York has implemented 22 a very similar game, almost a year in effect. We 23 have data, quite honestly, which is not as positive 24 as the other option which has been implemented in 25 Florida. So time has given us the luxury to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 evaluate a little more clearly. 2 MR. CLOWE: I think you're going to 3 have to understand -- at least my position is, is 4 that I'm being very mindful of what I am hearing 5 from the players. And I'm certain the other 6 Commissioners are mindful as well. 7 And I want to be made comfortable, 8 as we go forward and we see whatever your 9 proposition is, that, keeping what we heard in the 10 way of presentations -- and we had a town hall 11 meeting -- we're going to be satisfied with 12 whatever your recommendation is, if we entertain 13 it, and that we're going to come through all of 14 these opinions with the right answer. 15 MR. GOLDMAN: Okay. 16 MR. CLOWE: It's just -- there's a 17 little bit -- something on the sheet that you've 18 got to deal with. You don't start with a clean 19 sheet. 20 MR. GOLDMAN: Understood. 21 Understood. 22 MR. CLOWE: Okay. 23 MR. GOLDMAN: And again, this 24 industry does change. I won't say quickly. But as 25 more information is learned, you can adopt the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 newer version, we should say. We're not changing 2 our recommendation here. I think we've heard loud 3 and clear, specifically, the players in the town 4 hall meetings. 5 And the feeling is, as we get into 6 the specifics of the recommendation, we can do a 7 lot. Getting into the prioritization of game 8 design, we can do a lot with this game. Certainly, 9 there's always an issue of what am I taking away 10 from the player. And I think we've answered many 11 more positives than taken any negatives away. But 12 obviously, as we're done with this, we can 13 certainly entertain all issues. 14 Okay. Where are we recommending 15 going? And obviously, we will get into the 16 specifics of this. I just wanted to throw it right 17 out at you. 6 of 54, 55 percent prize payout. I 18 want to highlight that. 19 When we talk about giving something 20 to the players, this is a huge benefit for them. 21 As you'll see in the bottom line, both ways, this 22 is a win-win situation. Not only are we 23 recommending giving more to the players, but at the 24 end of the day, we're saying we will have more 25 sales, and accompanying revenue will be transferred WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 to the state at the end. A 25-year annuity where 2 we are now, one play for $1, two draws a week, the 3 same thing we are now. 4 Okay. What does this mean over the 5 course of the day? Now, we'll have a comparison 6 chart for you at the end, but just to give you the 7 specifics of the game. This is based on an annual 8 projection, again, 52 weeks, 104 draws. These are 9 the overall sales that we project of 736. 10 On a tier-by-tier basis, Match 6, we 11 expect 29 winners. By the way, that may include 12 duplicate winners. It doesn't mean 29 jackpots 13 won. And their expected prize, again, on 14 annuitized basis, is 19 million. That's an average 15 prize during the course of a year. Again, today, 16 our expected would be 11; we're actually at 9, for 17 comparison purposes. 18 Today, on a Match 5, we're 19 approximately $1,500. We're suggesting going up to 20 $2,500; again, giving the players something more. 21 Match 4, frankly, we're just 22 skipping up just a little bit there. We were 23 roughly 100, say, 105. 24 And here's a big, big difference. 25 At the Match 3 level, we're currently at $3, moving WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 up to $5, which ties with the highest in the 2 industry. Nobody is above that $5. This 3 represents a big increase in the percentage of 4 prizes that you devote through that category. And 5 I think that's a real important part going for it. 6 Let's go to the next chart. Now, 7 let me explain this one pretty slowly. What this 8 is saying, over the course of a year, 104 draws, 9 2 draws a week, we could expect -- and this 10 advertised jackpot means, obviously, what we 11 advertise -- this suggested roll pattern would be 12 from 4 million to 7 million to 11 million. We 13 would have 10 hits during the course of a year at 14 that level. 15 Now, if we take the anomaly we've 16 had recently, of 6, that takes 6 of the 10 right 17 out of the box, right away. Then again, that's in 18 those three tiers, not just at the first level. 19 These are obviously according to sales that we've 20 projected, that is, both on the draw basis and 21 total. We would have 8 hits from the 16-to-29 22 level. We would have 4 from 37 to 67. 23 Now we see where the rubber starts 24 hitting the road. That is some real meaningful 25 numbers here in Texas. And we would have 1 in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 95 to 136. 2 Now, let me back up before we all 3 get too excited. And I'm hearing about 56 weeks, 4 saying, "We never got that one, Marty. What 5 happened?" This projection is based on a 30-year 6 simulation. I'd glad we had Dr. Eubanks going 7 through what can happen, both short term and long 8 term. The longer term you go out, the odds will 9 get closer to what actually should be projected. 10 Now, this should happen over the 11 course of 12 months. It may be 16 months; it may 12 be 3 months. But statistically, this is what 13 should occur with this game over the course of 14 time. 15 Now, if we look at the overall 16 sales, again -- and again, we'll do a comparison, 17 736 million is the projection. Today, we are 18 trending approximately 570 million. So you're 19 looking at an overall sales increase of 20 $166 million. 21 And back to my earlier point, which 22 we'll go over, I'm sure, many times, we can 23 accomplish this while not taking anything away from 24 the players. The 55 percent payout is an important 25 piece of that, but the ability to roll the higher WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 jackpots because of the increased matrix size is 2 the big piece. 3 MR. CLOWE: So you're giving up 4 5 percent on your projection for an increase of 5 166 million, compared to the prior 12 months. 6 That's where you got the pro sales number from? 7 MR. GOLDMAN: The pro sales? Well, 8 it's actually current trending. 9 MR. CLOWE: Current trending. 10 MR. GOLDMAN: Right. 11 MR. CLOWE: And what, for example, 12 were pro sales in '93 when we had the big jackpot? 13 MR. GOLDMAN: I don't have that. 14 MR. KING: We may have it. 15 MR. CLOWE: I think you've got it in 16 that slide right there. 17 MR. KING: These are average per 18 week. That's -- 19 MR. GOLDMAN: That's approximately a 20 billion -- 900 -- about 980 million. 21 MR. CLOWE: 980. So that was the 22 top. Is that right, Larry? 23 MR. KING: Yeah. If you're looking 24 at '93, that's an average of 19 million per week. 25 Right now, we're averaging about 11 million per WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 week in Lotto. With this proposed game, based on 2 the projected sales, we would do about 14.1 million 3 per week. 4 It sounds like a big percentage 5 increase, about 30 percent -- it doesn't -- in 6 reality, it goes back to where we were, in some 7 cases, 15 million in 1998. So it sounds like a big 8 percentage increase, although we're just trying to 9 get back to where we used to be. 10 MR. GOLDMAN: Again, excellent 11 point. 12 If you'll look at it in the context 13 of the industry -- which John talked about earlier, 14 and they're in your insert sheet -- it would be a 15 healthy increase, a healthy increase. And where 16 the industry is today with the Lotto game, that 17 would be a sizable, sizable increase. 18 MR. CLOWE: Well, I'm trying to 19 equate how the player benefits. We see, I think, 20 in your numbers, there's a beneficial result to the 21 player. The State benefits, in that you're giving 22 up 5 percent more in the payout, but you're having 23 a return to healthier sales. 24 And yet you're dealing with what I'm 25 beginning to hear now is the most important issue, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 and that is the popularity of the game. If we have 2 40 million people who live in this state and none 3 of them will play, then we don't have a game. 4 MR. GOLDMAN: Well, I think the 5 important point is -- and we were going to talk 6 about some other options that we reviewed before 7 making this recommendation -- there are other 8 options, frankly, that, in the short term, can get 9 more sales and revenue for the Lottery just because 10 it would have the ability to spike the jackpots up 11 quicker. 12 But when we look at this, we look at 13 what's best for the long term, how we feel -- by 14 doing this, you give the players truly something 15 back. You really do. You give them -- in effect, 16 all four tiers have increases. True, from an odds 17 perspective, we certainly have changed that; we've 18 made it a little bit more difficult. 19 But because when they -- again, 20 prioritization of game design. We can't give them 21 everything, so what we have tried to do is -- 22 obviously, we've made it a little more challenging, 23 but we've given them back the prizes. We've given 24 them back the prizes. 25 You'll see, as we go through some of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 these examples of other states, most notably 2 Florida, they tried to accomplish, and did 3 accomplish, in fact, the same thing. They 4 increased their prizes in all tiers -- and it's 5 short term. It's only six months in, but their 6 sales have increased accordingly. 7 MR. KING: Marty, if I could just 8 interrupt one second. 9 The other -- we talked about the 10 State, and we talked about the players. The other 11 missing ingredient is the retailers. And I think 12 we calculated an additional $8 million in sales 13 commissions to the retailers based upon these 14 projected sales. 15 But the other added benefit is the 16 store traffic that they're going to realize again 17 on Wednesdays and Saturdays that they're not seeing 18 right now. In some cases, we used to hear 19 complaints of lines out the door, but now we're 20 hearing complaints that those people used to buy 21 other items in their convenience stores and their 22 grocery supermarkets. So we should realize that 23 again. 24 CHAIR MIERS: It's taken us a long 25 time to get to a point where we wanted to look at WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 options to change the game. In the approach that 2 is being presented, is there an eye to presenting 3 something that would be an answer for a long -- or 4 a reasonably long term, as opposed to something 5 that we'll be looking to change in two years, say? 6 MR. GOLDMAN: Well, again, and John 7 alluded to it. I think today, as opposed to back 8 in '92, '93, we look at Lotto as a portfolio of 9 products. Back then, it was just Lotto Texas and 10 nothing else. 11 Not only do we compete within the 12 state with our own games, but as John mentioned, 13 from a border perspective, we have mega-jackpots. 14 I think the important part now is to get this game 15 healthy. And I think this game will do that. 16 Two years down the road, whether 17 it's in evaluating this game -- potentially, if a 18 multi-state is on the calendar in two years, that 19 could be another option. But as a core product -- 20 you're one of the most successful lotteries in the 21 country -- getting this game healthy right away is 22 critical. 23 This actually represents -- and I'll 24 go through some of the options and the issues that 25 we face going through them -- this represents the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 absolute best option at this point. Not a bad 2 option, not a last-ditch effort, by any stretch of 3 the imagination; a healthy option to understand the 4 players' needs and desires, to understand from a 5 retailer's perspective. 6 Another issue that we should 7 mention -- and we've talked about the retailers -- 8 is not just the additional commissions, which is 9 certainly what they want, but the labor involved. 10 When we talk about a bonus ball game, that is a 11 little more cumbersome for them to explain. They 12 don't want to have to explain a lottery game. 13 "Same thing, just a couple more balls. Pick it." 14 Also, if I could mention, we talked 15 about coverage issues and things like that. The 16 majority of our tickets today are purchased via 17 Quick Pick. So from a coverage standpoint, your 18 question, Madam Chair, earlier, that it should not 19 be a huge problem because the majority are Quick 20 Pick -- and that number does rise as the jackpot 21 increases -- people want to buy tickets; they don't 22 want to spend time picking out all their favorite 23 numbers. 24 I don't know, John, if you may have 25 anything to add. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MR. CADDIGAN: No. I think that's 2 it. 3 MR. GOLDMAN: Okay. What I'd like 4 to do is, now, because we've gone through that, is 5 talk a little bit about two primary examples. 6 Again, if I can allude to the insert chart we 7 showed earlier, the top three Lotto games in the 8 country are Florida, New York, and California. 9 Florida and New York have recently 10 changed their game -- I'm sorry, Florida, New York, 11 Texas, and California. Linda gave me that smile 12 there. 13 I can go through these -- 14 MS. CLOUD: We're dropping down that 15 ladder fast enough. 16 MR. GOLDMAN: We can go through what 17 Florida has been through. 18 Now, they changed their matrix very 19 recently, on October 27th. They changed from a 20 6 of 49 to a 6 of 53. You see it again, the change 21 from an odds perspective. It's very similar to 22 what we're suggesting here, roughly 14 million and 23 roughly 23 million. 24 If we look at the according prize 25 structures here, 14 million was their average WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 annuitized jackpot won. With their new matrix so 2 far, it's been 18 million. They increased their 3 Match 5 prize, 5,000, Match 4, and so on. 4 Now, they opted here -- just as an 5 explanation, they opted here to reward more and 6 more at the Match 5 level, which from a prize 7 percentage pool basis, not to get too technical, 8 took a lot of that money here. So they made the 9 tradeoff in their minds that they wanted the 10 Match 5 prize to be much higher. If they would 11 have opted for 100 or 105 the way we have, that 12 prize would be down to the 2,500 level. 13 Let's look at the results here. On 14 your charts, they changed right here. They 15 actually physically had the first drawing on the 16 31st. This can happen. I think this is an 17 important thing to know. As luck would have it, 18 they got hit many times the first few weeks. You 19 see that lower level. 20 So all of a sudden, they're saying, 21 "What have we done?" But then one big jackpot took 22 care of that. They had a huge spike, and then they 23 had another sizable one here. And if we look on a 24 sale-by-sale basis and take the next slide -- 25 MR. CLOWE: Well, before you leave WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 that, what are their average weekly sales before 2 and after? 3 MR. GOLDMAN: The next slide will 4 get into that. 5 MR. KING: One thing to point out, 6 Marty, to Madam Chair's point, do people, after a 7 big jackpot, play? That is a healthy trend line at 8 the base level. It looks like it's higher than to 9 the left-hand side. 10 MR. GOLDMAN: Okay. Now, let's look 11 at the results. Let's go to the videotape. Here 12 are sales prior to. This is today. Now, you see 13 the size and the -- the red is the jackpot; the 14 blue is the sales. A 26 percent increase so far in 15 sales, 29 percent increase in jackpot. Higher 16 jackpot, higher sales. Pretty clean numbers here. 17 MS. CLOUD: Marty, can I interrupt 18 you just a moment -- 19 MR. GOLDMAN: Sure. 20 MS. CLOUD: -- while you're there? 21 MR. GOLDMAN: Please. 22 MS. CLOUD: Florida had projected 23 that they would reach $100 million over a period of 24 a year and increase sales in Lotto once this change 25 was made. They reached that goal in four months. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 They were at $98 million in four months. The one 2 jackpot, the biggest spike, was 78 million, and the 3 second jackpot was 55. 4 So they have had very good success 5 with this change, and just as much as -- last 6 weekend, I had an opportunity to talk with the 7 director. And he's very pleased with their change 8 and where they're going with it. 9 MR. CLOWE: And what is their 10 percentage payout? 11 MR. KING: It's 50 percent. 12 MS. CLOUD: 50 percent on Lotto. 13 MR. GOLDMAN: There's one other 14 thing we should mention, to make it an 15 apples-to-apples comparison. They also did as much 16 on the -- moving from one week -- a weekly Lotto 17 draw to 2 weekly draws. Now, they were one of the 18 last holdouts in the country. Traditionally, that 19 does give you an additional little bump. 20 The jackpot is what has driven that 21 sales run. But one thing, when you split into two 22 weekly draws, the coverage issue that Randy 23 mentioned earlier drops on a per-draw basis. So 24 basically, that means your chances of rolling are 25 more frequent, more often. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 MS. CLOUD: But they were real 2 concerned about that, because in the first 3 or 4 3 draws, they were hit every draw, and they thought 4 they had made a really huge mistake in the very 5 beginning. But then the jackpot started to roll. 6 MR. GOLDMAN: Okay. Let's look at 7 New York to now. New York opted for the bonus ball 8 situation. They were very keen on getting a lot of 9 lower tier prizes and dropping the overall odds. 10 You can see here, they were at 333 overall. Very 11 hot for a Lotto game. They dropped the overall 12 odds to 60. 13 Now, an important point to note on 14 New York, their objective was different from here. 15 Obviously, they want to increase sales, but they 16 had a situation in New York where their Lotto game 17 is funded at 40 percent. It's a 40 percent payout 18 game; however, what they were doing from their, in 19 effect, unclaimed prize fund, was funding that 20 jackpot to make it appear -- excuse me, to make the 21 equivalent payout to be roughly 50 percent. 22 So, in effect, from a revenue 23 perspective, it was costing them money. So a big 24 part of this change, while certainly trying to help 25 the player with lower odds, was to get that revenue WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 issue solid for them, and stable. They also -- and 2 we mentioned earlier in the chart, we talked about 3 they added another Lotto game. At the same time 4 they changed their game on March 1st, within days, 5 they added what was called a regional Lotto game. 6 And what that was, in four regions of the state, 7 they had many Lotto games. 8 And the reason we bring this up, 9 it's sort of a hybrid between a cash game and a 10 Lotto game. That certainly hurt their sales, we 11 feel, on a short term of that. 12 Now, we get into the sales chart 13 itself -- now, the opposite is -- this is 14 interesting -- of what Florida saw. This was the 15 current trending of New York's Lotto, their old 16 game. When they first launched it, they actually 17 were in the midst -- they just began to have a roll 18 going upward. They had a huge jackpot. 19 So the first few weeks, everyone is 20 happy: Hey, this is a great change. Well, what 21 happened, then they had a series of poor rolls. 22 And they have since been trending down. Despite 23 one jackpot up here, it has been going down. 24 Another complicating factor here, 25 and this is -- we should -- while we look at these WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 TEXAS LOTTERY COMMISSION MEETING, 3-14-00 1 for comparison purposes, each state must be looked 2 at on its own because every scenario is different. 3 In addition to the regional Lotto game I mentioned 4 they introduced in March, also they introduced a 5 Millennium game, a promotional game with a December 6 time frame, which brought in $65 million in sales 7 and generated a $100 million jackpot. 8 If you see this dip down here, 9 that's represented because they had competition 10 within their own state. So we show you New York 11 because they have one of the most recent changes. 12 But a lot of times, there's not apples to apples 13 here. 14 But if you look at the overall 15 sales, now, you're going to see some odd numbers. 16 But that's because of the regional Lotto and