0001 1 * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 JUNE 7, 2006 8 9 * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION meeting was held on the 7TH of JUNE, 2006, 19 from 9:00 a.m. to 2:25 p.m., before Brenda J. Wright, 20 RPR, CSR in and for the State of Texas, reported by 21 machine shorthand, at the Offices of the Texas Lottery 22 Commission, 611 East Sixth Street, Austin, Texas, 23 whereupon the following proceedings were had: 24 25 0002 1 APPEARANCES 2 Chairman: Mr. C. Tom Clowe, Jr. 3 Commissioners: 4 Mr. James A. Cox, Jr. 5 General Counsel: Ms. Kimberly L. Kiplin 6 Acting Executive Director: 7 Mr. Anthony J. Sadberry 8 Charitable Bingo Executive Director: Mr. Billy Atkins 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX - June 7, 2006 2 PAGE 3 Appearances.................................... 2 4 AGENDA ITEMS 5 Item Number I.................................. 6 The Texas Lottery Commission will call the 6 meeting to order 7 Item Number II................................. 26 Report by the Bingo Advisory Committee Chairman, 8 possible discussion and/or action regarding the Bingo Advisory Committee's activities, including 9 the May 10, 2006 Committee meeting 10 Item Number III................................ 31 Consideration of and possible discussion and/or 11 action on nominations and/or appointments to the Bingo Advisory Committee 12 Item Number IV................................. 34 13 Consideration of and possible discussion and/or action, including adoption, on amendments to 14 16 TAC 402.102 relating to the Bingo Advisory Committee 15 Item Number V.................................. 54 16 Report, possible discussion and/or action on 1st quarter calendar year 2006 bingo conductor 17 information 18 Item Number VI................................. 68 Report, possible discussion and/or action on the 19 characteristics and/or profiles of organizations conducting bingo 20 Item Number VII................................ 121 21 Report, possible discussion and/or action on implementation of the new Administrative Penalty 22 Guideline rules 23 24 25 0004 1 INDEX - CONTINUED - June 7, 2006 2 PAGE 3 Item Number VIII............................... 124 Report, possible discussion and/or action on the 4 agency's Strategic Plan for 2007-2011 5 Item Number IX................................. 125 Consideration of and possible discussion and/or 6 action on external and internal audits and/or reviews relating to the Texas Lottery Commission 7 and/or on the Internal Audit Department's activities 8 Item Number X.................................. 6 Report, possible discussion and/or action on 9 GTECH Corporation, including proposed acquisition of GTECH 10 Item Number XI................................. 126 11 Consideration of and possible discussion and/or action on the lottery operator contract, including 12 whether the negotiation of the lottery operator's contract in an open meeting would have a detrimental 13 effect on the Commission's position in negotiations of the lottery operator contract 14 Item Number XII................................ 126 15 Report, possible discussion and/or action on the agency's contracts 16 Item Number XIII............................... 126 17 Consideration of and possible discussion and/or action on the appointment and employment of an 18 Executive Director 19 Item Number XIV................................ 130 Commission may meet in Executive Session 20 Item Number XV................................. 131 21 Return to open session for further deliberation and possible action on any matter discussed in 22 Executive Session 23 24 25 0005 1 INDEX - CONTINUED - June 7, 2006 2 PAGE 3 Item Number XVI................................ 131 4 Consideration of the status and possible entry of orders in Dockets A through O 5 Item Number XVII............................... 157 6 Report by the Acting Executive Director and/or possible discussion and/or action on the agency's 7 operational status, and FTE status 8 Item Number XVIII.............................. 159 Report by the Charitable Bingo Operations Director 9 and possible discussion and/or action on the Charitable Bingo Operations Division's activities 10 Item Number XIX................................ 161 11 Public comment 12 Item Number XX................................. 161 Adjournment 13 14 Reporter's Certificate......................... 162 15 16 17 18 19 20 21 22 23 24 25 0006 1 JUNE 7, 2006 2 CHAIRMAN CLOWE: Good morning. It is 3 June the 7th, 2006, 9:00 a.m. Commissioner Cox is 4 here. My name is Tom Clowe. We'll call this meeting 5 of the Texas Lottery Commission to order. And I see 6 that we have some members of the public who are here, 7 and in diffidence to them, I would like to call on 8 them, if they wish to participate, under, I believe, 9 item ten. Is it, Director Sadberry? Report, possible 10 discussion on -- action on GTECH Corporation, 11 including proposed acquisition of GTECH. 12 MR. SADBERRY: That's correct, 13 Chairman. What this agenda item pertains to is, as -- 14 as you recall, this regards the previously announced 15 proposed acquisition of GTECH, the Commission's 16 lottery operator, by Lottomatica, the operator of the 17 Italian Lottery. At the May 17th, 2006, Commission 18 meeting, the Commission received a report on this 19 matter from David Mattax, Financial Litigation 20 Division Chief, Office of the Attorney General; also, 21 Patrick Thompson and Rod Edens, with the law firm of 22 Graves, Dougherty, Hearon & Moody, and Lieutenant Mark 23 Riordan and Sergeant Cliff Manning, of DPS. 24 David Mattax is here today to give you 25 an update on this matter, as well as Lieutenant 0007 1 Riordan. We anticipate that outside counsel will also 2 be here in the event you have questions of them. At 3 this time, I would ask that David provide you with the 4 update and answer any questions you may have at this 5 time. 6 CHAIRMAN CLOWE: Very good. 7 Good morning. 8 MR. MATTAX: Good morning, 9 Commissioners. My name is David Mattax. I'm chief of 10 the Financial Litigation Division of the Office of the 11 Attorney General. 12 CHAIRMAN CLOWE: I think your mike is 13 off, David. Try it again. There you go. 14 MR. MATTAX: Try that. My name is 15 David Mattax. I'm chief of the Financial Litigation 16 Division of the Office of the Attorney General. 17 As Executive Director Sadberry said, at 18 the last meeting, we provided you the results of the 19 investigation that had been performed with respect to 20 the proposed merger of the Lottomatica corporation, an 21 Italian corporation, with GTECH, the service provider 22 for the lottery. I want to provide an update today, 23 and -- and we'll probably continue to provide these 24 updates -- they'll be very brief -- at the various 25 meetings. 0008 1 At that point in time, we had discussed 2 the fact that we had not found anything out of the 3 ordinary with the transaction, that the vetting 4 process that the Department of Public Safety had done 5 had not revealed any problems with suitability of the 6 Lottomatica operation. The De Agostini Group was the 7 controlling party. 8 We're here to report today that that 9 information has not changed. We have not discovered 10 anything to change our views with respect to that. 11 And, again, we will continue the investigation, and 12 should any matters come to our attention, we'll 13 certainly bring them to you. 14 In addition, the Commission may recall 15 that one of the issues that was raised with respect to 16 that was because the GTECH Corporation was not going 17 to -- was no longer going to be listed with the New 18 York Stock Exchange, that information that is normally 19 provided to the SEC would not be provided. Now, what 20 will be provided instead was information provided to 21 Consob, which is the equivalent of the -- the SEC 22 in -- in Italy. 23 One of the issues that came up 24 subsequent to that meeting was an issue was raised 25 with respect to whether or not the reporting for GTECH 0009 1 would be consolidated with Lottomatica or -- or would 2 be separate. I had previously had discussions with 3 Mr. DeSocio at GTECH, and my understanding had been 4 and was that the Lottomatica and -- and GTECH would -- 5 although they were being consolidated, one reported 6 concept, that there would be individual audited 7 financial statements for both GTECH and -- and 8 Lottomatica. And I had confirmed that -- that 9 understanding before our meeting. But the issue was 10 raised. 11 As you will recall, we proposed a 12 letter that would be sent to -- to GTECH, outlining 13 the information that we wanted to continue to have. 14 And an issue was presented, why don't we include that 15 in the letter. And so, as you'll recall, we had a 16 five-paragraph letter we proposed to send. And the 17 thought was, well, let's just add another paragraph, 18 six, that specifies that the accounting will continue 19 with respect to GTECH separately, which simply would 20 confirm what my previous understanding was. And I 21 certainly saw no harm in including in a letter that 22 fact. So we have revised that letter, and I have 23 copies if I can present to y'all, if I may. 24 CHAIRMAN CLOWE: Certainly. Thank you. 25 MR. MATTAX: And paragraphs one through 0010 1 five of this letter are the same that we discussed at 2 the last -- last meeting. And paragraph six, as 3 you'll see, specifies that no later than 75 days 4 following the end of each fiscal year, GTECH shall 5 provide to the Texas Lottery Commission annual audit 6 consolidated financial statements. It also provides 7 for six months interim financial unaudited reports. 8 And, again, as I said, this just confirms my 9 understanding that GTECH would continue to have 10 separate audited financial statements. And of course, 11 the reason for that is that, then, would allow the 12 Commission to monitor the financial viability of -- of 13 GTECH should any concerns arise with respect to that. 14 Secondarily, we had also discussed at 15 the outset that we wanted to continue to get the same 16 information that we had been receiving through the SEC 17 reports. And my understanding was that the Consob 18 filings are the rough equivalent of SEC, and, 19 basically, the same information would be included in 20 that. But we wanted to, basically, if you will, one 21 through -- paragraphs one through five I would call 22 the belt, and paragraph six is the suspenders. And so 23 what -- what we wanted to do is go ahead and say, 24 well, we know that's going to be included in Consob, 25 but let's make sure that same type of information is 0011 1 reported the same way it would be in the SEC, just in 2 case there was any differences. And those are then 3 the sub parts of paragraph six. And we specify 4 particular items, and we -- and we reference 5 particular SEC rules and -- and circulars, outline the 6 types of information, and that way in the event that 7 what is filed with Consob is slightly different or not 8 as complete as what we would get with the SEC, then we 9 would advise GTECH we want to continue to get that, 10 pursuant to the SEC regulations. 11 So, in summary, as I said, paragraphs 12 one through five of this letter, which will be sent to 13 GTECH, directing them to continue to provide 14 information to the Lottery, could be considered the 15 belt that's going to make sure we get all the 16 information we need, and six will be the suspenders to 17 make sure that we get all the information in the form 18 we need. 19 And so, with that, this letter is going 20 to go out, and I think that then would mitigate any 21 type of issues with respect to information. I think 22 we'll continue to get the same types of information we 23 need. And with that, I conclude my report for today 24 and will be happy to answer any questions. 25 CHAIRMAN CLOWE: David, we're very 0012 1 appreciative again, as we already said, of the work 2 that you've done and -- and the others. And I 3 appreciate this follow-up on your part and tightening 4 up, so to speak, in regard to the letter. I know 5 there are some changes in the offing at the Office of 6 the Attorney General. My understanding is that 7 Mr. McBee is going on to a wonderful position, and you 8 have a wonderful replacement coming in. And I'm a 9 little bit selfish in that I hope we'll continue to be 10 able to have your services and those of others. We 11 depend on you greatly. And is it your anticipation 12 that our relationship will remain the same? 13 MR. MATTAX: Yes, Chairman. I see no 14 reason that anything will change. And I continue to, 15 you know -- it's a pleasure and an honor to be able to 16 provide services to the Lottery Commission. It's 17 certainly my intent to continue to do so. 18 CHAIRMAN CLOWE: Great. We -- we rely 19 on that, and we look forward to this continuing 20 relationship. 21 Lieutenant Riordan, we're appreciative 22 of you being here. I think I have one question for 23 you, if you wouldn't mind coming up. 24 LT. RIORDAN: Yes, sir. 25 CHAIRMAN CLOWE: And I'll ask you if 0013 1 you have anything further to what David has told us 2 that you would like to give us by way of a continuing 3 report at this time. 4 LT. RIORDAN: Yes, sir, Mr. Chairman, 5 Mr. Commissioner. My name is Mark Riordan. I am a 6 lieutenant with the Texas Department of Public Safety 7 Criminal Intelligence Service, in Houston. 8 The -- there were two issues that 9 remained outstanding from our -- our last testimony 10 before the Lottery Commission. And those two issues 11 involved the criminal background checks of the Italian 12 personnel, both at Lottomatica and at their parent 13 company, De Agostini, and also the company out of 14 Luxembourg, Invest Games. Those criminal background 15 checks remain outstanding. The Italian law 16 enforcement officials are taking our requests very 17 seriously and continue to work on those. I expect to 18 receive them any day, virtually any minute, but have 19 not received them as of today. I have checked with 20 other states that are involved in doing their 21 administrative background investigation, and they are 22 in the same -- in the same boat we are. We are -- we 23 are still awaiting an answer on that. 24 The second issue that was not resolved 25 was the insider trading charge that had been filed 0014 1 against Lorenzo Pellicioli, who is the chairman of 2 Lottomatica's board of directors and the chairman of 3 De Agostini -- De Agostini's board of directors. As 4 you recall from our conversation the last time, this 5 involved, several years ago, a purchase of a company 6 by the company Mr. Pellicioli headed that was, as we 7 have confirmed, approved by three different banks and 8 also approved by the shareholders of the company. 9 That purchase ultimately was the subject of some 10 controversy and came to the attention of a prosecutor 11 in Italy, who ultimately filed a charge in 2001 12 against Mr. Pellicioli for insider trading. We have 13 been able to confirm that that charge remains 14 outstanding, as I discussed last time. However, it 15 is -- ita statute of limitations will expire the first 16 part of 2007, and it's anticipated that that charge 17 will be allowed to expire without any court action 18 being taken. That was the second thing that was -- 19 that was outstanding. 20 I do want to also add that one of the 21 issues that we raised last time, and that was just 22 alluded to by -- by Mr. Mattax, is the sharing of 23 information with the Texas Lottery Commission, as the 24 Lottery Commission is used to getting from GTECH 25 through the SEC. The question was, whether we would 0015 1 remain -- whether that information would still come to 2 us through the Italian companies. 3 And approximately a week and a half 4 ago, I was contacted, completely voluntarily, by the 5 legal counsel of Lottomatica and was offered copies of 6 all of their current Consob disclosures. They did so 7 on their own, without any requests from me, just as 8 they had promised they would do. And, in fact, on 9 Monday I received the package of their -- all of their 10 recent disclosures. It's about four inches thick. 11 We're copying it, and I'll be providing it to the 12 Lottery Commission officials when that is complete. 13 So they have -- they have demonstrated 14 what they promised to do initially. Of course, the 15 planned merger hasn't gone ahead yet, so we'll -- 16 we'll wait and see after that fact. But they've 17 already delivered on what they promised, which I was 18 pleased to see. That's all the updates I have for 19 today. 20 CHAIRMAN CLOWE: Lieutenant, there was 21 an open issue about the investigation of GTECH. Where 22 do you stand on that at this time? 23 LT. RIORDAN: The investigation of 24 GTECH involves the -- the fact that the business 25 transaction with the Italian companies, in their plan, 0016 1 in their Strategic Plan, the GTECH administration -- 2 excuse me -- or management will be the management of 3 this new company once this merger is complete, or so 4 that -- that they have said. And so we are conducting 5 that investigation. 6 We have a few interviews of -- of board 7 of director members that remain outstanding. We've 8 scheduled those interviews and will have those 9 complete in less than two weeks. We have also 10 scheduled meetings with two other law enforcement 11 entities to -- to try to see the status of their 12 investigation. 13 And we are -- and then, after that, the 14 completion of our investigation of GTECH will -- will 15 follow a meeting with the -- and ultimately a meeting 16 with the CEO of GTECH to discuss any negative issues 17 or findings and -- and then to report those issues and 18 findings to you. 19 I -- I anticipate our legwork to be 20 complete by the end of this month, and the report will 21 follow there just as quick as we can get it. 22 CHAIRMAN CLOWE: And do you or 23 Mr. Mattax have the anticipated closing date of this 24 transaction at this time? 25 MR. MATTAX: Well, today, my 0017 1 understanding is that the GTECH shareholders will be 2 voting on the transaction, and it's conceivable the 3 transaction could close by the end of the month, 4 probably July time frame, but within the next several 5 weeks if it's going to go forward, and it'll probably 6 go forward. 7 CHAIRMAN CLOWE: So they're moving 8 ahead and we are moving ahead? 9 MR. MATTAX: That's correct. 10 CHAIRMAN CLOWE: And our activities, I 11 think, from what I have seen of it, have been very 12 timely, thorough, and complete. 13 MR. MATTAX: Well, yes, I appreciate 14 that, and -- and I think the main point we wanted to 15 make sure of is before the transaction was complete, 16 that we had vetted the Lottomatica and the De Agostini 17 Group, who are the new players in the game. And I 18 think that has been very thoroughly done by the 19 Department of Public Safety. 20 And then, of course, we have a 21 continuing relationship with GTECH and -- and a 22 continuing obligation on their part to provide us 23 information. And, if anything, you know, comes to -- 24 to the front through any of these investigations that 25 would require action, we will bring that to y'all and 0018 1 provide y'all with that information. 2 CHAIRMAN CLOWE: Great. I see there 3 are gentlemen here from the outside law firm. Do you 4 gentlemen have anything to add to what has been said? 5 MR. THOMPSON: Commissioners, I'm 6 Patrick Thompson, and -- and all I would add is that 7 I'm very glad that Mr. Mattax was able to reach an 8 agreement with GTECH regarding the access to this 9 information. Your ability to make appropriate 10 decisions regarding the Lottery operator are dependent 11 upon your access to good, accurate, and timely 12 information. And currently the SEC's filing 13 requirements give you access to a great deal of 14 information about GTECH. And in light of the -- the 15 letter that Mr. Mattax has prepared to GTECH and their 16 apparent agreement to it, I think you'll have -- will 17 continue to have access to that type of information, 18 which is good. And -- and that was the second half of 19 the formula, the first half being the DPS's 20 investigation of the new parties that would be 21 involved in running the Lottery operator. That being 22 done, the only remaining question was your continuing 23 ability to monitor the Lottery operator by having 24 access to appropriate information, and I think this 25 letter goes a very long way towards addressing that 0019 1 issue. 2 CHAIRMAN CLOWE: I have a question 3 about the future. Each of you in your own way, 4 working together, have done such an excellent job for 5 us. I'm wondering about how we might maintain an 6 oversight. And -- and we have talked about continuing 7 to observe and continuing to monitor. And, you know, 8 after a deal gets done, there can be a tendency to 9 just -- everybody go back to sleep. And I just wonder 10 if you'd give some thought, not necessarily give us 11 advice today, but talk with each other about it, and 12 give us a plan where we might have a standing 13 committee or an identified ongoing effort to monitor 14 this, and to keep abreast, and not get caught up by 15 getting some late information and saying, oh, we 16 should have been aware of this sooner. Would -- would 17 you help us in that regard? 18 LT. RIORDAN: Yes, sir, Mr. Chairman. 19 I would like to address that just briefly. We've made 20 dozens of contacts around the country, both in law 21 enforcement and also with other Lottery commissions 22 and Lottery investigators. In addition to that, we've 23 made contact with foreign Lottery investigators from 24 other countries and officers from other countries 25 conducting investigations similar to ours. And the -- 0020 1 and numerous contacts in the country of Italy, 2 involving oversight over the current Lottomatica and 3 investigations similar to -- to those that -- that we 4 conducted. And I would be most happy to share those 5 contacts with the Lottery Commission, Lottery 6 Commission investigators, to make those introductions. 7 And I can assure you if -- if those contacts are made, 8 the Lottery Commission will have no problem 9 maintaining an -- an accurate and timely picture of 10 the new company. 11 MR. MATTAX: And one other point I 12 would like to make is that, you know, the letter we're 13 sending out, which is a directive to GTECH to provide 14 information, is not exclusive. I mean, at any time we 15 decide we need additional or further information, we 16 can continue to request that. And the way that I have 17 approached this with GTECH is that I wanted to let 18 them know what we were asking for to make sure they 19 can, in fact, do it. But it's not really something 20 that I expect them to agree with. This is something 21 I'm going to tell them to or the Lottery Commission is 22 going to tell them to do, and pursuant to their 23 contract, they're obligated to provide that 24 information. And, of course, I wanted to touch base 25 with them because I don't want to be asking for 0021 1 something that, you know, is -- is just not going to 2 be able to be -- be done, so I wanted to verify that 3 it was, in fact, going to be done that way. 4 But, again, in the future, should 5 additional information be needed or we find things not 6 as complete as we like them, we'll simply send them 7 another letter and instruct them that we want it. And 8 they are fully apprised of that and fully understand 9 that when we ask for information, they are obligated 10 contractually to respond to whatever we like. 11 MR. THOMPSON: Commissioner, I -- I 12 appreciate that clarification by Mr. Mattax because 13 the -- your existing contract with the Lottery 14 operator gives you very extensive rights in terms of 15 your access to information, including access to 16 information -- whatever information you prescribe 17 regarding people who are employed by the Lottery 18 operator or the people who own the Lottery operator. 19 So that was a right that you came into this 20 transaction with. And the letter that Mr. Mattax 21 prepared to GTECH, basically, puts GTECH on notice as 22 to some of the aspects of the way you're going to 23 exercise that right. And -- and so to characterize it 24 as an agreement is -- is inappropriate except to refer 25 to the agreement that was made back when GTECH 0022 1 originally entered into this contract. They already 2 agreed to provide you with this information. 3 And then, secondly, on the subject of 4 ongoing monitoring, the -- one of the provisions of -- 5 that GTECH is subject to is, of course, that -- that 6 significant information in terms of change of 7 ownership or other events that affect the company, 8 negative or positive, significant developments in 9 terms of litigation or government actions, need to be 10 promptly reported to the Lottery Commission. As an 11 SEC regulated company, they were to be promptly issued 12 in a press release, but they'll no longer be subject 13 to that. The -- though they're subject to a somewhat 14 similar requirement under the Consob regulations. 15 My recommendation would be that there 16 be a member of the staff who is constantly monitoring 17 those communications and anything regarding a 18 significant change in control, ownership, or 19 significant event for the company, in terms of 20 government relations or litigation, be promptly 21 reported to the Executive Director or the General 22 Counsel, so that they could make a decision as to 23 whether it's something that requires Commission action 24 or -- or attention. 25 You will be getting information, and so 0023 1 then the key is just making sure that we make 2 appropriate use of it when you get it. And -- and so 3 establishing some sort of formal protocol for 4 reviewing and handling that information would probably 5 be appropriate. 6 CHAIRMAN CLOWE: Commissioner, my 7 interest here and -- and, Director Sadberry, I would 8 like to suggest that you think about this as well, but 9 this group has done such as excellent job of 10 determining where our interests lie in this matter. 11 And because of the importance of this contract and the 12 fact that we had one company that bid this last time, 13 we have this contract existing. And the relationship 14 is such that, as it is, I would like to keep something 15 current and not just sign this and, once this 16 transaction is completed, back to business as usual. 17 And by that I'm thinking of a way to reach out to 18 these three excellent resources and tap them from time 19 to time to not only have a current look, but think 20 about things that have affected us that might change 21 in the future. 22 And I happen to be an advocate of the 23 idea that there will be change. I think you'll see 24 people leaving and people coming and you'll see 25 control moving around, and this deal is just getting 0024 1 started if it -- if it gets done. And I don't want us 2 to fall behind in monitoring this. It's very 3 important to us, as certainly you-all are more aware 4 than I am, and I would just like to keep right up to 5 where we are now, from here on, on this subject. 6 COMMISSIONER COX: I agree. 7 CHAIRMAN CLOWE: So, Director Sadberry, 8 I would ask you, if you will, to give some thought, 9 bring the General Counsel into that thinking, and see 10 how we can monitor this as it proceeds and have 11 reports from time to time of changes that are 12 significant enough to be called to our attention. 13 MR. SADBERRY: Chairman and 14 Commissioner, I -- I understood that to be the sense 15 of your initial query. And so together with the 16 response you received in general to the query and now 17 these specific comments, I will say that I -- I very 18 much concur in your observations and find that that 19 would be most helpful and appropriate, from the 20 agency's standpoint, to the extent that we can, from a 21 contractual relationship perspective, continue in the 22 service of these very valuable and important resources 23 to us. That is the nature of the importance from our 24 perspective of this contractual relationship with our 25 operator and to have the outside resources that are 0025 1 available from the Attorney General's Office and the 2 Department of Public Safety and outside counsel ready 3 and assembled, if you will, at all times, to be able 4 to be proactive is, I think, of utmost importance. I 5 will, as you have indicated, make this a matter of 6 priority, and, with the concurrence of the General 7 Counsel, will see what our -- and -- and as well as 8 the offices who are a part of this team, see what our 9 options are in that respect and keep you at all times 10 apprised of that. We will expect it on a 11 going-forward basis that this will be a standing item 12 of interest and concern to the Commissioners, and we 13 will report to you in the course of this progress. 14 I also join in expressing the 15 appreciation for the work of this group. I have been 16 active a significant portion of the time during their 17 work and want you to know, from my perspective, that 18 they have done, as you have observed, an outstanding 19 job, and that this Commission has been well served, 20 and I think has set a standard in -- in this process 21 that we can be recognized well for having done. And 22 so we are pleased with this work and pleased to go 23 forward with the relationships that have been created 24 here. 25 CHAIRMAN CLOWE: Thank you all very 0026 1 much. 2 MR. SADBERRY: Thank you. 3 CHAIRMAN CLOWE: Next we'll go to item 4 number two on the agenda, report by the Bingo Advisory 5 Committee Chairman, possible discussion and/or action 6 regarding Bingo Advisory Committee's activities, 7 including the May 10th, 2006, Committee meeting. 8 Ms. Taylor, good morning. 9 MS. TAYLOR: Good morning. Good 10 morning. Beautiful day in Austin. No rain. 11 I'll go ahead and read you the report 12 on the May 10th meeting. 13 Item number one. The Bingo Advisory 14 Committee to the Texas Lottery Commission met on 15 May 10th, 2006, in Austin, at 10:00 o'clock a.m. All 16 members were in attendance. BAC members welcomed 17 Commissioner Clowe to the meeting. 18 Item two. It was moved, seconded, and 19 unanimously passed to approve the February 16th, 2006, 20 Bingo Advisory Committee meeting minutes as posted 21 online with no changes. 22 Item three. Sandy Joseph updated BAC 23 members with the activities of the Price Fixing 24 Workgroup. Two draft rules, one from Jamie McNally 25 and the other from Stephen Fenoglio, have been 0027 1 presented to the committee for their comments. The 2 committee has plans to continue to meet. 3 Item four. The Progressive 4 Bingo/Alternative Styles of Play Workshop is 5 continuing to gather information. The staff is 6 seeking information from other jurisdictions and will 7 attempt to judge the impact from the new rule. The 8 first draft should be ready within the next month. 9 The committee also discussed rules regarding 10 loteria-style bingo games. 11 Item five. Colin Haza updated BAC 12 members with activities of the 79th Legislature 13 relating to bingo. 14 Item six. Bobby Heith discussed the 15 public service announcements mailed to BAC members. 16 He urged BAC members to reach out locally to get air 17 time for the PSA. A radio PSA is currently being 18 worked on and Bobby requested suggestions from BAC 19 members. 20 Item seven. Phil Sanderson reviewed 21 the timeline of the two new rules relating to the 22 Administrative Penalty Guideline. 23 Item eight. Phil Sanderson reported to 24 the BAC on the Fourth Quarter 2005 and 2005 conductor 25 information and reviewed the analysis put together by 0028 1 the staff. BAC members congratulated the staff for a 2 great presentation and requested a copy. Commissioner 3 Clowe told the BAC he hopes the Commission can be a 4 resource as an accurate appraisal of the bingo 5 industry. It was agreed that bingo needs more 6 attendance. 7 Item nine. Billy Atkins reviewed the 8 recommendations of the BAC to the Commissioners that 9 Knowles Cornwell replace Danny in the distributor 10 position, Markey Weaver replace Mario Manio in the one 11 commercial lessor position, and for Suzanne Taylor to 12 serve another term in the other commercial lessor 13 position. The Commissioners should be able to meet 14 with the nominees sometime in the next week. 15 Item ten. The Bingo Caller of the Year 16 Workgroup has not been able to meet, but planned to 17 meet after the BAC meeting to continue to work on the 18 project. 19 Item 11. Suzanne reported to the BAC 20 members the proposed 2006 Bingo Advisory Committee 21 Work Plan was presented, approved, and adopted by the 22 Commissioners on March 29th, 2006. No additional 23 items were requested by the Commissioners at this 24 time. Billy advised BAC members new items can be 25 added by the BAC for approval by the Commissioners. 0029 1 Item 12. Suzanne reported to the 2 committee the 2005 Charitable Bingo Annual Report 3 Workgroup would be meeting after the BAC meeting to 4 work on the report. Workgroup members are Suzanne, 5 Kimberly, Mario, and Larry. 6 Item 13. Billy Atkins reviewed the 7 2005 Charitable Bingo Annual Report. 8 Item 14. Billy Atkins reported to BAC 9 members 44 conductors and two lessors had filed their 10 Quarterly Reports electronically. Receipts for pull 11 tabs have continued to increase. The first Quarter 12 2006 figures will be presented at the next meeting. 13 And the Commissioners will be holding two meetings 14 monthly on the first and third Wednesdays of the 15 month. The first meeting will deal with bingo items 16 and the second meeting of the month will deal with 17 lottery items. 18 Item 15. Public Comment: David 19 Heinlein told BAC members it was important to look at 20 the adjusted net receipts (gross less prizes) on the 21 reports. He congratulated the staff on a good report. 22 Commissioner Cox addressed the committee and told them 23 he had requested the adjusted net so the amount going 24 to charities is a larger amount than 1 to 2 percent of 25 the gross before prizes. 0030 1 Item 16. Items for the BAC meeting 2 tentatively scheduled for August 9th at 10:00 a.m. 3 were discussed. 4 And Item 17. The meeting was adjourned 5 at 11:41 a.m. 6 If you have any questions, I would be 7 glad to answer those. 8 CHAIRMAN CLOWE: Thank you for your 9 report, Suzanne. I would just like to, by way of a 10 note of clarification, say that our plan in holding 11 two meetings a week is to set the agendas so that we 12 are primarily dealing with bingo or lottery issues so 13 that they're equally dealt with and timely dealt with, 14 but at any time during any meeting, as long as it's on 15 the agenda, we can deal with any item. And I -- I 16 don't want to get a mind set that we won't be talking 17 about lottery on the bingo meeting day or vice versa. 18 And so I would just like to add that note of 19 clarification. I want that flexibility, if we may 20 have it. 21 MS. TAYLOR: Yes, sir. 22 CHAIRMAN CLOWE: Very good. 23 Billy have you anything to add. 24 MR. ATKINS: The only thing I would 25 add, Commissioner, I think, to your point of 0031 1 clarification, I believe that's also contained in the 2 transcript, that the goal is to primarily address 3 those issues. There can be some -- some slight 4 variations as business needs arise. 5 The only thing I would add is that the 6 staff has started to include with this agenda item a 7 copy of the agenda from the meeting that is being 8 reported so you will have the opportunity to review 9 that prior to the report from the BAC Chair. 10 And then, just to follow up on what 11 Suzanne said, the next meeting is currently scheduled 12 for August 9th. 13 CHAIRMAN CLOWE: Very good. And I 14 think Commissioner Cox and I look forward to that 15 meeting, and we'll work out our attendance schedule so 16 that we can participate. Thank you for inviting us to 17 do that. 18 MS. TAYLOR: Well, we appreciate your 19 attendance. 20 CHAIRMAN CLOWE: Thank you both very 21 much. 22 MS. TAYLOR: Thank you. 23 CHAIRMAN CLOWE: Next, item three, 24 consideration of and possible discussion and/or action 25 on nominations and/or appointments to the Bingo 0032 1 Advisory Committee. Mr. Atkins. 2 MR. ATKINS: Thank you, Commissioners. 3 You have in your notebook a memo with the names of the 4 two individuals that have been recommended by the 5 Bingo Advisory Committee to fill expired terms. Those 6 individuals are Markey Weaver, of Bryan, who has been 7 nominated to replace Mario Manio in the commercial 8 lessor position, and Knowles Cornwell, of Dallas, who 9 has been nominated to replace Danny Moore in the 10 manufacturer/distributor position. Backgrounds have 11 been conducted on both of these individuals, and those 12 reports have not indicated anything that would prevent 13 these individuals from being eligible to serve on the 14 Advisory Committee. 15 Finally, you have each individually had 16 the opportunity to interview these nominees on 17 May 16th, so these nominations are ripe for your 18 consideration at this time. 19 CHAIRMAN CLOWE: And what is the term 20 for each, Billy? 21 MR. ATKINS: They are three-year terms, 22 with the starting date of February of this year. So 23 they will run through February of 2009. 24 CHAIRMAN CLOWE: And what is the next 25 vacancy you anticipate? 0033 1 MR. ATKINS: There is currently a 2 vacancy in Ms. Taylor's position. It's for a 3 commercial lessor position. With the exception of the 4 conductor lessor position, an individual may not be on 5 the license of -- be on the record of more than one 6 license type. So her position still needs to be 7 filled. And then there will be three more positions 8 come up in February of next year. 9 CHAIRMAN CLOWE: So we're going to see 10 some turnover, so to speak, in the committee over that 11 period of time? 12 MR. ATKINS: Yes, sir. 13 CHAIRMAN CLOWE: Very good. 14 Commissioner, any comments? 15 COMMISSIONER COX: No, sir. I spoke 16 with both these folks, and they seem to be qualified. 17 They seem to be willing to serve and understand that 18 they're not going to get paid. They're not going to 19 get reimbursed their expenses, and they still say 20 they'll participate. So I -- I certainly think 21 they're worthy candidates. 22 CHAIRMAN CLOWE: Very good. 23 Billy, we want to thank the members of 24 the staff and the members of the nominating committee 25 who have worked on these nominations. They've done a 0034 1 good job. We appreciate those efforts. 2 And with that, I move that we accept 3 these two nominees into these terms, beginning in 4 February of this year, for three years. 5 COMMISSIONER COX: Second. 6 CHAIRMAN CLOWE: All in favor, please 7 say aye. Opposed, no. The vote is two-zero in favor. 8 MR. ATKINS: Thank you, Commissioner. 9 We will notify these two individuals by letter of the 10 action today, ask them to confirm to us in writing 11 that they're eligible to serve. We will also take 12 steps at the next meeting to recognize those outgoing 13 members. 14 CHAIRMAN CLOWE: Very good. Thank you, 15 Billy. 16 Next, item four, consideration of and 17 possible discussion and/or action, including adoption, 18 on amendments to TAC 402.102, relating to the Bingo 19 Advisory Committee. Ms. Joseph. 20 MS. JOSEPH: Good morning, 21 Commissioners. My name is Sandy Joseph, Assistant 22 General Counsel. 23 Before you is the proposed amendment to 24 Charitable Bingo Rule 16 TAC Section 402.102, 25 pertaining to the Bingo Advisory Committee. The 0035 1 purpose of the amendment is to extend the duration of 2 the BAC through August 31st, 2007, so that the 3 committee can continue to advise the Commission. 4 At the March 29th, 2006, Commission 5 meeting, you voted to continue the BAC and to propose 6 an abolishment date of August 31st, 2007. The 7 proposed rule change was published in the Texas 8 Register on April 14th, and a public hearing was held 9 on April 24th, in order to receive public comments. 10 No comments were received. 11 The staff recommends adoption of the 12 proposed amendment. I would be happy to answer any 13 questions. 14 COMMISSIONER COX: Sandy, I have three 15 questions. The first one relates to item (e), 16 Reports. 17 MS. JOSEPH: Yes. 18 COMMISSIONER COX: And, Billy, this -- 19 I don't -- this is for whoever wants to answer it. I 20 could read this section to say that the Bingo Advisory 21 Committee has an official reporting capacity to report 22 gross receipts, charitable distributions, expenses, 23 and attendance to this Commission. But I believe that 24 it's the responsibility of the Charitable Bingo 25 Division and the Comptroller's Office to report those 0036 1 things to the Commission. How has this been 2 interpreted, and does it really -- does it -- does it 3 read the way I think it might, or does it -- is that 4 just me? 5 MR. ATKINS: Commissioner Cox, if I may 6 start an answer, if -- if Ms. Joseph has anything she 7 would like to add. This specific section that you're 8 referring to is the result of a Sunset recommendation 9 that was made to the 78th Legislature. Specifically, 10 their recommendation was to attempt to find a way to 11 make sure that the Advisory Committee was providing 12 meaningful information to the Commission. And so that 13 is what led to the development of this specific 14 language. In terms of the information, who is the 15 keeper of the information, et cetera, that's the 16 Charitable Bingo Operations Division. And we enter 17 and maintain information as it's submitted to us by 18 the organizations. 19 What the Bingo Advisory Committee has 20 done, in order to comply with this section of the rule 21 is, they have formed work groups to prepare an 22 individual annual report to the Commission. The last 23 one they provided was on calendar year 2004. I 24 believe they're still working on their 2005 report to 25 the Commission. That work group includes as a member 0037 1 Terry Shankle, who is the Accounting Services 2 supervisor for the Charitable Bingo Division. The 3 numbers that are included in the report are numbers 4 that come from the Division, either through 5 Ms. Shankle or through the Bingo Services Center. 6 Again, numbers provided by the Division. 7 It's the staff's understanding and 8 interpretation that the purpose of this section is to 9 provide a vehicle for the Advisory Committee to give 10 you recommendations of their understanding of those 11 figures and any recommendations they may have to the 12 Commission as a result of those figures. But the 13 maintenance of the figures resides with the Charitable 14 Bingo Division. 15 COMMISSIONER COX: Okay. So the way 16 you read this, Billy, what they're being asked to do 17 is only incidentally use the numbers to provide us a 18 narrative report on what those numbers might mean? 19 MR. ATKINS: That's true. They could 20 have additional insight that they would offer to the 21 Commission as organizations actually conducting 22 charitable bingo as to why, for example, attendance 23 figures are what they are. 24 COMMISSIONER COX: So -- but the 25 numbers come from your operation? 0038 1 MR. ATKINS: The numbers come from our 2 Division as they are reported to us by the 3 organizations. 4 COMMISSIONER COX: Okay. 5 CHAIRMAN CLOWE: Commissioner Cox, I 6 think that's a good observation, and I don't think 7 that's clear in this language. 8 I think what you told us, Billy, helps 9 me understand it, but reading this, I don't -- I don't 10 get that read. And I think, based on Commissioner 11 Cox's question, I would be more comfortable if the 12 rule reflected what you have told us. 13 How do you feel about that. 14 COMMISSIONER COX: I'm fine with that. 15 CHAIRMAN CLOWE: Because, you know, 16 if -- if somewhere, sometime down the road, somebody 17 reads this literally, and you're not there to give the 18 interpretation, we might go off on the wrong road. 19 MR. ATKINS: Commissioners, again, I 20 don't want to speak out of turn, and I know Ms. Joseph 21 will correct me if I'm incorrect. But I believe that 22 now is an appropriate time, if there are additional 23 changes that you would like to see to this rule. 24 MS. KIPLIN: Well, if I could -- if I 25 could address that. 0039 1 MR. ATKINS: Okay. 2 MS. KIPLIN: Because I think that, 3 Mr. Atkins, you and I discussed that, that right now 4 the rule is before you for consideration of adoption. 5 And you can certainly direct staff that, rather than 6 adopt, what you would like to do is republish. I 7 think this would be a -- a change that would require 8 republication to clarify that language. 9 MS. JOSEPH: Definitely. Because there 10 was no change proposed to this rule other than the 11 expiration date of the BAC. 12 MS. KIPLIN: That's right. And we 13 received no comment as to that particular proposed 14 change. And we would be glad to draft language 15 consistent with the discussion that we're having today 16 and move forward to republish that, or we can -- we 17 can bring that specific language at the -- at the next 18 appropriate Commission meeting for y'all to actually 19 take a look at the language. And then y'all are -- 20 are free to -- to republish that. But it would need 21 to be something that would need -- need to be 22 republished to allow folks to provide comment on that 23 proposed change. 24 MR. ATKINS: And I appreciate counsel's 25 clarification. That's -- that's what I had intended, 0040 1 not that the change could be made now and adopted, but 2 that you're not obligated to adopt this rule today, 3 that it could be republished with additional 4 amendments if you so choose. 5 COMMISSIONER COX: Well, are -- do we 6 need, Mr. Chairman, to go ahead and adopt this to 7 continue the BAC in existence? 8 CHAIRMAN CLOWE: I don't think so. 9 MS. JOSEPH: We have some time. Of 10 course, you voted for it to continue in existence. 11 That -- the -- the present time will expire August 12 31st of 2006. Another option, however, would be to go 13 ahead and adopt this amendment, and then we could 14 begin another amendment process to make other changes 15 that you would like to see to this rule. There -- the 16 time frame would be about the same because, either 17 way, we're going to have to go back and publish with 18 the Texas Register. 19 CHAIRMAN CLOWE: I don't think there is 20 any doubt of that, but you think we might be cutting 21 it close if we say we want it reworked and then 22 republished and then consider it for adoption? 23 MS. JOSEPH: Possibly. 24 CHAIRMAN CLOWE: Against the expiration 25 date? 0041 1 MS. JOSEPH: Yes. And I don't -- I 2 mean, personally, I don't see any reason to not go 3 ahead and adopt this change, if you're comfortable 4 with it, and then go back and make other changes. I 5 don't think we'll be losing any time by doing that. 6 CHAIRMAN CLOWE: Well, why don't we go 7 through -- Commissioner Cox indicated he had three 8 items. Why don't we go through the other two and 9 let's see where we are. 10 COMMISSIONER COX: Okay. Great. On 11 item (h), Criminal History Review, all BAC members 12 must meet the criminal history standards set out in 13 indicated code. A member who fails to meet will be 14 disqualified, will be removed. 15 Now, Billy indicated, on the two new 16 members, that background checks have been done. My 17 question relates to ongoing monitoring. How do we 18 assure -- we -- we assure ourselves that there is a 19 baseline, that they're okay when they come in. How do 20 we make sure that they don't become disqualified and 21 we don't know about it? 22 MR. ATKINS: Commissioner Cox, one of 23 the provisions of the background that is performed on 24 BAC members is a step that's in addition to the normal 25 background that is conducted on all licensees. So to 0042 1 begin with, with the exception of the public member on 2 the BAC, all BAC members have gone through a 3 background check with the DPS as a result of their 4 association with the licensee. For individuals 5 nominated to the BAC, they are -- 6 COMMISSIONER COX: Well, let me -- let 7 me stop you. What -- what's -- what role does the 8 Department of Public Safety play in this? 9 MR. ATKINS: We submit to the -- to the 10 Department of Public Safety a tape containing the -- I 11 believe it's the social security number, driver's 12 license number, and name of individuals submitted to 13 us, to either be on the registry of workers or be 14 associated with the licensee. That tape is submitted 15 to DPS. DPS runs that tape against their database, 16 and they submit to us individuals who may have a 17 potential disqualifying -- it's called a hit on their 18 database. 19 COMMISSIONER COX: That gets us a 20 baseline. 21 MR. ATKINS: That gets us a baseline. 22 As it relates to the Bingo Advisory Committee, 23 nominees are asked to complete a questionnaire, as 24 well as submit fingerprint cards. Those fingerprint 25 cards are submitted also to DPS. DPS runs those 0043 1 fingerprint cards. And when DPS has those fingerprint 2 cards on file, DPS sets up a system whereby if that 3 individual has a subsequent arrest and those 4 fingerprints match up, the agency is notified. 5 COMMISSIONER COX: Okay. So the 6 Department of Public Safety effectively has the ball 7 of ongoing monitoring? 8 MR. ATKINS: That's correct. 9 COMMISSIONER COX: And they will report 10 to us, then, should someone fall out of eligibility? 11 MR. ATKINS: That's correct. 12 CHAIRMAN CLOWE: And I have a question, 13 Commissioner Cox, at this point, and perhaps the 14 General Counsel will be the one to answer this. 15 Does that apply to Commissioners as 16 well? 17 MS. KIPLIN: Not that I'm aware of. 18 CHAIRMAN CLOWE: Does it apply to the 19 employees of this agency as well? 20 MS. KIPLIN: Employees of the agency's 21 fingerprints are taken, and they're -- they're put 22 into the system. And so if there were a subsequent 23 arrest, then this agency would be notified of that 24 subsequent arrest. The challenge is following up on 25 the disposition of that arrest, and that -- that 0044 1 becomes challenging because counties -- there's 254 2 counties. They handle their business in a different 3 way. And it's really incumbent on the agency, 4 whatever that agency is, to follow up on -- on the 5 information that is conveyed by the Department of 6 Public Safety. And -- and the reason I said, I'm not 7 aware, is because your backgrounds are requested by -- 8 as I understand it, by the Governor's Office. And the 9 Department of Public Safety conducts those background 10 investigations on -- at the request of the Governor, 11 and that information would go, I presume, to the 12 Governor's Office. 13 CHAIRMAN CLOWE: It's been a long time, 14 but I -- I remember being fingerprinted and having the 15 background check run, and it seems to me that my 16 approval or word that I passed the background check 17 came from this agency and not from the Governor's 18 Office. 19 MS. KIPLIN: If you were -- it may have 20 been an additional background. If you were 21 fingerprinted, then, as I understand it, if you were 22 subsequently arrested, that notification would -- 23 would come to the agency that submitted those 24 fingerprints. 25 CHAIRMAN CLOWE: That's the answer I 0045 1 think I was looking for. In our case, the DPS does a 2 background check, but I think we request it as well. 3 And that puts us in line for additional arrest 4 information. And if that were developed, then would 5 that information come to -- I guess it would come to 6 the Chair of the Commission, wouldn't it? 7 MS. KIPLIN: The information would go 8 to, more likely than not, the liaison, which would be 9 the Enforcement Division in this point, and then that 10 information would be conveyed appropriately. 11 CHAIRMAN CLOWE: Well, Commissioner, I 12 just -- I think what's sauce for the goose is sauce 13 for the gander, and I would like for us to be in a 14 position of making certain that everyone is 15 scrutinized at the same level and there is an element 16 of fairness there which applies not only to BAC 17 members, which is the original discussion, but to the 18 leadership of this agency and the others who are 19 appropriated as well. 20 COMMISSIONER COX: Absolutely. Now, so 21 I've got it part of the way. The Department of Public 22 Safety has everybody's name and the fingerprints and 23 whatever, and if somebody is arrested, the Department 24 of Public Safety tells us that they've been arrested. 25 Now the Department of Public Safety has done its job. 0046 1 But an arrest is not a disqualifying offense. So what 2 I think I heard Ms. Kiplin say is that it's our 3 responsibility here to be sure that we follow that 4 arrest and determine whether it results in a 5 conviction or some other kind of disqualifying 6 disposition. How do we do that? 7 MS. KIPLIN: Through the work of the 8 Enforcement Division, the -- the staff there would 9 know where the arrest occurred, so they would know the 10 county. I'm -- I'm saying on a -- a generic -- they 11 would know the county, and they would monitor, via 12 contact with the clerks of that -- of that county, 13 county clerk, district clerk. They know the court -- 14 the court, and they follow any avenue that they need 15 to, to monitor what happens with that arrest. It 16 could be a whole different variety of outcomes. It 17 could be a dismissal. It could be pending going to -- 18 to trial. It could be a plea. There is variance on 19 how long an arrest could be pending. It could be a 20 year. It could be more. It could be less. So it's 21 a -- monitoring with an opportunity to have some sort 22 of tickler system to go back and keep checking. It's 23 fairly tedious. 24 COMMISSIONER COX: So the tickler 25 system might say, check every month or, okay, we know 0047 1 it's going to trial in October, check in October? Or 2 how would that work? 3 MS. KIPLIN: I think it depends on the 4 information as we go through the process, just as you 5 laid out. The information that -- that you get from 6 that particular court or that particular county. 7 We've -- if we have a reason to believe it's going to 8 trial, then we would want to monitor and see what the 9 outcome of the trial is. It's not uncommon in a trial 10 setting to have a pass and another trial setting, have 11 a pass, another trial setting, have a pass. 12 COMMISSIONER COX: Now, Billy, I 13 remember that when you did your initial -- 14 MR. ATKINS: Commissioner Cox, I just 15 wanted to -- to say something else. I have to defer 16 to the process that Ms. Kiplin laid out because it's 17 my understanding from the staff that I talked to in 18 the Bingo Division, as well as the staff in the 19 Enforcement Division, there has never been anyone 20 that's been fingerprinted from the Bingo Division that 21 has subsequently had an arrest reported to us. 22 COMMISSIONER COX: Have we -- following 23 that, have we, when someone reapplied, ever found that 24 someone had been arrested and convicted during the 25 time between applications and we had not been notified 0048 1 by the Department of Public Safety? 2 MR. ATKINS: I don't believe so. No, 3 sir. 4 COMMISSIONER COX: So we haven't had 5 any reports, and we have no indication that we should 6 have had any reports. 7 Now, Billy, when -- when you initially 8 ran the registry, you found 12, 14 people that had had 9 convictions that disqualified them, if I remember 10 right. You took them off the registry because they 11 had disqualifying convictions, maybe two months ago? 12 MR. ATKINS: Well, we -- we routinely 13 submit those names of individuals as they apply for 14 the registry. 15 COMMISSIONER COX: Okay. 16 MR. ATKINS: And as I mentioned, that 17 tape will go over to the DPS. They'll run their 18 report. They'll send back what are identified as 19 potentially disqualifying because, as you mentioned, 20 not everything is necessarily a disqualification under 21 the Bingo Enabling Act. The enforcement staff 22 research those further, and that includes, from what I 23 understand, actually obtaining documents from the 24 local courts, which may be conviction documents, et 25 cetera. And then based on an independent analysis of 0049 1 those, individuals will be deemed to be ineligible to 2 be placed on the registry. So as a result of that, we 3 will go to a hearing in -- at the State Office of 4 Administrative Hearings. 5 COMMISSIONER COX: Now, there seem to 6 be two sets here. There is the set that you send a 7 tape over to the Department of Public Safety and they 8 run it, and then there is another set where 9 fingerprints are taken. 10 MR. ATKINS: That's correct. 11 COMMISSIONER COX: On the first set, 12 which I think is the registry, you just have to do 13 that periodically because the Department of Public 14 Safety does not undertake to report to you on an 15 ongoing basis regarding those? 16 MR. ATKINS: That's correct. And in 17 those cases, that is done at the time of application. 18 COMMISSIONER COX: Okay. And how often 19 do you run those again, to see that there might have, 20 since the application, been disqualifying events? 21 MR. ATKINS: In the case of a license 22 and the individual submitted with the license, it 23 could be one year or two years, depending on the type 24 of license they have received, because you know now 25 some organizations can receive a two-year license. In 0050 1 the case of the registry of workers, it would be -- 2 three years? Oh, every 11 months. Every 11 months. 3 COMMISSIONER COX: Okay. Now, we've 4 got another one down here, (k), Removal. And, Billy, 5 I've got the same kinds of questions here. How, 6 within your shop, do you ensure that someone who has 7 become delinquent in any liability to the State, et 8 cetera, et cetera, that that is applied against the 9 Bingo Advisory Committee members to assure that one of 10 them hasn't run afoul of this Commission? 11 MR. ATKINS: Thank you, Commissioner. 12 And you're referring to (k) where -- (k) Removal? 13 COMMISSIONER COX: Yes. 14 MR. ATKINS: That also was a 15 recommendation from the Sunset Commission to the 78th 16 Legislature that there be -- I -- I can't remember 17 what -- what they called it now, but there be, you 18 know, some level that the members of the BAC be held 19 to. It's the staff's position that when this language 20 was drafted and developed, the reference to any 21 liability to the State was specific to the liabilities 22 that the Bingo Division is responsible for, that is, 23 prize fees or gross rental tax. And what happens is, 24 on a quarterly basis, those reports are filed with the 25 Division and processed. If they're not, there is a 0051 1 nonfilers' list that is generated and, again, is 2 reviewed by the staff, Terry Shankle in the Accounting 3 Services section. That may result in a -- what is 4 called an 054 or an opportunity to show compliance 5 letter going to that organization. It's during that 6 process that those organizations are reviewed in any 7 potential association with BAC membership. Now, what 8 the staff has not done is again, taken any action or 9 recommended to the Commission any action, say, if a 10 quarterly report and payment has been a day late. 11 It's only when the staff has had to go to the step of 12 taking specific action. 13 COMMISSIONER COX: Okay. Let me see if 14 I understand. You have -- your Division is 15 responsible for, obviously, knowing who is delinquent? 16 MR. ATKINS: Yes, sir. 17 COMMISSIONER COX: Do you intentionally 18 compare the list of delinquents with the members -- 19 the list of the members of the Bingo Advisory 20 Committee, to ensure that they're not -- they haven't 21 fallen out of compliance? 22 MR. ATKINS: You know, Commissioner 23 Cox, the number of organizations that become 24 delinquent has become so small that we don't -- I 25 cannot tell you that we consciously sit down at one 0052 1 time and say, what we're doing right here right now is 2 comparing these to the Bingo Advisory Committee. It's 3 done in connection with the whole process because, 4 again, it may involve 20 organizations. 5 COMMISSIONER COX: So you would just 6 know? 7 MR. ATKINS: Yes, sir. 8 COMMISSIONER COX: Thank you. 9 Thank you, Mr. Chairman. 10 CHAIRMAN CLOWE: If -- if -- I have the 11 impression that you're satisfied on the latter two of 12 your three comments? 13 COMMISSIONER COX: Well, I am -- I am 14 satisfied with what Billy said regarding (h), Criminal 15 History Review, but we have some cases back here that 16 cause me to wonder how well the process really works. 17 And so when we get to those, I'm going to be asking 18 some of the same kinds of questions. 19 CHAIRMAN CLOWE: Would you like to 20 defer action on this until we get to that section on 21 the agenda -- 22 COMMISSIONER COX: No, sir. I'm fine 23 with what it says. 24 CHAIRMAN CLOWE: You are? 25 COMMISSIONER COX: What I'm concerned 0053 1 with is, how does it really work. 2 CHAIRMAN CLOWE: Okay. 3 COMMISSIONER COX: Or how do we -- how 4 do we ensure that we keep the committee members in 5 compliance with these provisions. 6 CHAIRMAN CLOWE: Well, then, if you're 7 satisfied with that, in light of the explanation we've 8 had on timing, I would be happy to vote for adoption 9 of this rule at this time and give the staff direction 10 to take clarification action on that portion which was 11 covered by your questions regarding the Bingo Advisory 12 Committee's level of activity and direction of 13 activity on statistical data. Would you be amenable 14 to that? 15 COMMISSIONER COX: Yes, sir. 16 CHAIRMAN CLOWE: I so move. 17 COMMISSIONER COX: Second. 18 CHAIRMAN CLOWE: All in favor, please 19 say aye. Opposed no. The vote is two-zero. 20 So, Sandy, we'll ask you to give us 21 some clarification on that separate section that we 22 had the discussion on. 23 MS. JOSEPH: We'll do that. 24 CHAIRMAN CLOWE: We'll take a short, 25 ten-minute break and come back. 0054 1 (RECESS.) 2 CHAIRMAN CLOWE: We'll come back to 3 order, please, and we'll take up item number five on 4 the agenda, report, possible discussion and/or action 5 on first quarter calendar year 2006 bingo conductor 6 information. 7 Mr. Sanderson, good morning. 8 MR. SANDERSON: Good morning, 9 Commissioners. For the record, my name is Phil 10 Sanderson, Assistant Director of the Charitable Bingo 11 Operations Division. 12 I'm here to present to you the first 13 quarter 2006 information as reported by licensed 14 authorized organizations. 15 The prize payout percentage for regular 16 bingo in the first quarter was 72.6 percent, while the 17 prize payout percentage for instant bingo was 73.1 18 percent. This -- these percentages have been 19 increasing on an annual basis, compared to the first 20 quarters of the previous years. However, it's still 21 the lowest percentage for any quarter in a particular 22 year. 23 COMMISSIONER COX: Okay. The prize 24 payout percentage for regular and electronic has 25 changed, has increased? 0055 1 MR. SANDERSON: Has -- has gone up from 2 the previous first quarter of 2005. Yes, sir. 3 COMMISSIONER COX: Okay. Now, why is 4 there variability in that number? The rules of the 5 game haven't changed, have they? 6 MR. SANDERSON: Is -- there's -- there 7 is no set prize payout limit, other than the 750 and 8 the 2500 per occasion. So if an organization takes in 9 3,000 dollars and gives out, you know, 2500, then it's 10 going to be a higher percentage than one that takes in 11 6,000. 12 COMMISSIONER COX: Okay. So the -- the 13 limitation -- there are no dictates on the purse; 14 there are just limitations? 15 MR. SANDERSON: There are just dollar 16 limitations. 17 COMMISSIONER COX: Okay. 18 MR. SANDERSON: No percentage 19 limitations. 20 COMMISSIONER COX: So what -- what 21 we're saying here is that the operators are trying to 22 make the game more attractive to the players by 23 increasing the return to the players. Is that what is 24 happening here? 25 MR. SANDERSON: I don't believe so 0056 1 because, there again, like I said, the -- the prize 2 payout -- there is a cap of 750 dollars per game and 3 2500 dollars per occasion, which is just a flat dollar 4 amount. So if they got the attendance and people 5 spending the money and buying in the -- the buy-in 6 packs, and their gross receipts for the regular bingo 7 is 3500, and they give out 2500, then they've got a 8 pretty good percentage. But if they only take in 9 3,000 and give away 2500, then that percentage -- 10 COMMISSIONER COX: So this could be a 11 function of nothing other than declining attendance? 12 MR. SANDERSON: Quite possibly, yes, 13 sir. 14 MR. ATKINS: Commissioner Cox? 15 COMMISSIONER COX: Yes, Billy. 16 MR. ATKINS: I do think there could be 17 some validity to your statement to the extent, as -- 18 as Phil has indicated, there have been organizations 19 that have just reported to us verbally that they will 20 give away the maximum amount allowed by law, 21 regardless of what their take is, for the very reason 22 that they fear losing a client base further if they 23 don't do that. 24 COMMISSIONER COX: Sure. Okay. 25 MR. SANDERSON: And the example -- 0057 1 there's -- you know, there's good nights and bad 2 nights in a bingo location, so they -- to keep the -- 3 the habit of customers coming in, will stay open on 4 Monday night and might not make as much money, but 5 have a good night on, you know, Friday or Saturday or 6 something like that. 7 COMMISSIONER COX: Suzanne and 8 Kimberly, I saw y'all shaking your head one way or the 9 other. Did y'all have anything that you wanted to say 10 about that? 11 Is that okay if we ask them, 12 Mr. Chairman? 13 CHAIRMAN CLOWE: Sure. Sure. 14 MS. TAYLOR: Nothing more than I'm in 15 complete agreement. As the attendance is going down, 16 that's causing the -- the payout to assume a higher 17 percentage because the gross is less. 18 COMMISSIONER COX: Thank you. 19 MR. SANDERSON: To continue, here is a 20 chart indicating disbursements other than prizes. We 21 have changed this chart at the suggestion of the 22 Commission and the Bingo Advisory Committee to reflect 23 the percentage of net receipts, which is gross minus 24 prizes, where previously we were using percentages of 25 gross receipts. As you can see, the highest remains 0058 1 rent payments to distributors at 22.2 percent; 2 salaries for callers, cashiers, and ushers is 19.3 3 percent; charitable distributions is 17.4 percent; 4 lease payments to distributors, 11.3 percent; with the 5 remainder of all other expenses 7 percent or less. 6 COMMISSIONER COX: Okay. Now, those 7 fell -- are those allowable expenses, or are those all 8 expenses? Or is there a difference between allowable 9 expenses and total expenses? 10 MR. SANDERSON: These are allowable 11 expenses as reported to us by the organizations. They 12 have not necessarily been audited at this point, so we 13 don't know if they were authorized expenses. 14 COMMISSIONER COX: Okay. Do they 15 report -- is there a category on your report form for 16 unauthorized expenses? 17 MR. SANDERSON: No, sir. 18 COMMISSIONER COX: So if I'm an 19 operator and I want to spend something that isn't 20 deductible, if you will, for this purpose, I don't 21 have any place to put it on the form? 22 MR. SANDERSON: No, sir, there is not a 23 place to put it on the form. 24 COMMISSIONER COX: Am I prohibited from 25 making expenditures of that nature? 0059 1 MR. SANDERSON: Yes, sir. 2 COMMISSIONER COX: So if it doesn't fit 3 on the form, I can't make it? 4 MR. SANDERSON: For the most part, that 5 is correct. Yes, sir. 6 CHAIRMAN CLOWE: Not legally. 7 MR. SANDERSON: There is a -- there is 8 a -- 9 CHAIRMAN CLOWE: You can do it, but it 10 won't be legal. 11 COMMISSIONER COX: Okay. 12 MR. ATKINS: Commissioner Cox, these -- 13 these are items that are -- Phil, correct me if I'm 14 wrong -- but, yes, they are on the form, but they are 15 specifically mentioned in the Act. 16 MR. SANDERSON: That is correct. There 17 is a section in the -- in the statute which lays out 18 what are authorized expenses, including, and this is 19 that list that is in statute. 20 MR. ATKINS: And if -- and if -- you'll 21 see, there -- there is an "other expenses." 22 COMMISSIONER COX: Oh, there is an 23 other? 24 MR. ATKINS: Yes, sir. At the very 25 bottom of the -- of the green box, there on the right. 0060 1 COMMISSIONER COX: I don't see it. 2 MR. ATKINS: It's the -- 3 CHAIRMAN CLOWE: Miscellaneous? 4 COMMISSIONER COX: Oh, under -- 5 MR. ATKINS: Under -- it falls under 6 miscellaneous. 7 COMMISSIONER COX: Okay. Now, let 8 me -- let me go back to something you said, Phil. You 9 said, including. Tell me what the statute says. 10 MR. ATKINS: We can defer to 11 Ms. Kiplin. She has the statute. 12 COMMISSIONER COX: Great. 13 MR. ATKINS: Do you recall the 14 provision that -- 15 MR. SANDERSON: It's 458 or 459. 16 MS. KIPLIN: It's Texas Occupations 17 Code, Section 2001.458, an item of expense may not be 18 incurred or paid in connection with the conduct of 19 bingo except an expense that is reasonable or 20 necessary to conduct bingo, comma, including an 21 expense for, semicolon -- and then there is a laundry 22 list of those -- of those expenses. 23 COMMISSIONER COX: Is it that laundry 24 list? 25 MS. KIPLIN: Well, I -- I will tell you 0061 1 what. Can -- let me read it because I'm not sure I 2 can keep looking up to compare. The first one is 3 advertising, comma, including the cost of printing 4 bingo gift certificates. The second one is security. 5 The third is repairs to premises and equipment. The 6 fourth is bingo supplies and equipment. The fifth is 7 prizes. The sixth is stated rental or mortgage and 8 insurance expenses. The seventh is bookkeeping, 9 comma, legal, comma, or accounting services related to 10 bingo. The eighth is fees for callers, comma, 11 cashiers, comma, ushers, comma, janitorial services, 12 comma, and utility supplies and services. The ninth 13 is license fees. The tenth is attending a bingo 14 seminar or convention required under a particular 15 provision. And the 11th is debit card transactions -- 16 pardon me -- debit card transaction fees. 17 I will tell you that this has been the 18 subject of, I guess, requests for advisory opinions. 19 And we have -- have looked at this internally within 20 the Legal Division. This particular provision 21 underwent a change, I believe, in 2003. And it used 22 to read, reasonable and necessary to conduct bingo. I 23 may be wrong on the 2003, but it underwent a change. 24 And it used to read, that is reasonable and necessary 25 to conduct bingo, and did not include the last part, 0062 1 comma, including an expense for. Including, under the 2 Code of Construction Act, Ms. Joseph is here, I 3 believe, and she has vetted it quite a bit. But 4 that's considered to be, under the Code of 5 Construction Act, a term of enlargement. So this is 6 not to be considered to be a limited list. 7 COMMISSIONER COX: Okay. So these are 8 examples -- in -- and the statute gives examples of 9 things that are reasonable and are necessary, but it 10 is not an all -- an exhaustive list? 11 MS. KIPLIN: I think that's true. I 12 also think that it's not in the conjunctive, 13 reasonable and necessary. It is in the disjunctive -- 14 COMMISSIONER COX: Reasonable or 15 necessary. 16 MS. KIPLIN: -- reasonable or 17 necessary. And I think the list that's set out are -- 18 are those that are clearly considered by the 19 legislature to be -- to be either reasonable or 20 necessary. The issue, then, would be the amount -- 21 the dollar amount for each one of those categories. 22 COMMISSIONER COX: So it might be 23 reasonable to pay a caller, but it might not be 24 reasonable to pay a hundred thousand an event? 25 MS. KIPLIN: That's right. And that -- 0063 1 that creates -- and Mr. Atkins can chime in and jump 2 on me, but I think it creates consternation for his 3 staff, who are out reviewing these kind of expenses, 4 because what might be reasonable or necessary as a 5 dollar amount -- for example, I'm using this just by 6 way of example, in one part of -- of the state may not 7 be a reasonable or necessary amount in another part of 8 the state. 9 COMMISSIONER COX: And there is a whole 10 library full of IRS cases on that. 11 MS. KIPLIN: Correct. The other thing 12 that I would -- I would say that is a bit of a 13 disconnect -- or is a disconnect, there is another 14 provision within the Bingo Enabling Act, the 15 Occupations Code, and I'm looking for it now, where 16 the legislature did not change the phrase "reasonable 17 and necessary." So you have one that reads reasonable 18 and necessary and another one that reads reasonable or 19 necessary. 20 Now, to the extent that these 21 statutes -- this is another bit of legislative 22 construction. To the extent that those statutes 23 cannot be harmonized to be read in -- in harmony, 24 generally, the latter change is the one that prevails, 25 in terms of -- of intent. 0064 1 MR. SANDERSON: Kim? 2 MS. KIPLIN: Yes, sir. 3 MS. SANDERSON: That section is 4 2001.453(a)(1). 5 MS. KIPLIN: Okay. Okay. And just to 6 add more to -- it says the -- that is 2001.453. It's 7 entitled, Authorized Uses of a Bingo Account. And 8 it -- it indicates, the licensed authorized 9 organization may draw a check on its bingo account 10 only for -- and the first one is the payment of 11 necessary and reasonable bona fide expenses, comma, 12 including compensation of personnel -- personnel -- 13 pardon me -- as permitted under Section 2001.458. So 14 it actually goes back and references that same statute 15 that is now in the disjunctive. 16 COMMISSIONER COX: So, Phil, I guess 17 the answer to my question might be that I would put it 18 in Miscellaneous Expenses under the category Other 19 Expenses? 20 MR. SANDERSON: The -- the quarterly 21 report was revised the first quarter of 2005, to 22 capture more detail of other expenses. We have -- at 23 that point, we took other expenses out because we were 24 looking at the -- the list as being exclusive. 25 COMMISSIONER COX: Uh-huh. 0065 1 MR. SANDERSON: And since then, it has 2 become, you know, like Ms. Kiplin says, a little more 3 construed broader possibly. So if an organization has 4 an expense that does not necessarily fall into one of 5 these categories, then we can advise them on what 6 category to put that in if they have a question. 7 COMMISSIONER COX: Okay. So there is 8 attention directed to the -- to the area that I'm 9 talking about? 10 MR. SANDERSON: Yes, sir. 11 COMMISSIONER COX: We do try to find a 12 way to help people put oddball expenses in the right 13 category? 14 MR. SANDERSON: Yes, sir. 15 COMMISSIONER COX: Okay. Thank you. 16 MR. ATKINS: Commissioner Cox, just for 17 clarification. Again, this is our attempt to best 18 present to you the information we receive. Is 19 there -- is there any specific change to -- to this 20 graph or anything that -- that you would like to see? 21 COMMISSIONER COX: No. I was just 22 trying to understand the process. 23 MR. ATKINS: Okay. All right. Thank 24 you. 25 MR. SANDERSON: This pie chart is a 0066 1 graphical indication of what percent each expense is 2 as it relates to total expenses, once again, not 3 including prize payouts. The salaries for janitorial, 4 callers, cashiers, ushers, security, legal, and 5 accounting account for 52.1 percent of total expenses. 6 When including rent payments, the amount represents 7 91.4 percent of total expenses. 8 Now I would like to show you a new 9 chart that we have added to the presentation. This 10 pie chart shows the product mix for bingo. Of the 11 total gross receipts for the first quarter, instant 12 bingo represented 39 point -- 39 percent of total 13 sales. This is the first time in history that instant 14 bingo has surpassed regular card sales during a 15 specific quarter. As you can see, the remainder of 16 the sales were 38 percent for regular card sales and 17 28 percent for electronic card sales. 18 Here is another new slide that we have 19 added. This chart shows the comparison of net 20 receipts for the first quarter 2005 and the first 21 quarter of 2006, once again, net receipts being gross 22 receipts minus prizes. As you can see, the net 23 receipts for regular bingo decreased 1.8 million, 24 while the net receipts for instant bingo increased 3.9 25 million. 0067 1 This last slide charts the average 2 attendance per occasion for the first quarters of 3 2004, 2005, and 2006. As you can see, this indicates 4 that the average attendance per occasion continues to 5 decline. 6 In your notebook is an analysis that 7 was performed -- 8 COMMISSIONER COX: Does that say six? 9 CHAIRMAN CLOWE: Go back to that. I'm 10 unclear, Phil. Are the titles of the right two 11 columns the same, or is there a difference? Is that 12 a five or a six in the middle column? 13 MR. SANDERSON: It's 146. 14 CHAIRMAN CLOWE: No, at the bottom. 15 MR. SANDERSON: 2005. 16 CHAIRMAN CLOWE: Is that a five? Okay. 17 I -- I was trying to determine whether it was a five 18 or a six. 19 COMMISSIONER COX: It looks like a 20 six -- 21 CHAIRMAN CLOWE: It kind of looks like 22 a six to me. But it is a five? 23 MR. SANDERSON: Yes, sir. 24 CHAIRMAN CLOWE: Thank you. 25 MR. SANDERSON: In your notebook is an 0068 1 analysis that was performed by Susan Beasley, Program 2 Specialist for the Office of the Comptroller, which 3 pertains to the subsequent spreadsheets in your 4 notebook. I would like to point out to you a new 5 bullet that was added, which is the second bullet on 6 the memo, which is net receipts for the first quarter 7 of 2006 has increased 4.9 percent over the first 8 quarter of 2005 and 3.9 percent over the first quarter 9 of 2001. 10 That concludes my report for this 11 agenda item, and I'll be glad to answer any questions 12 that you may have. 13 CHAIRMAN CLOWE: Thank you, Phil. 14 Next, item six, report, possible 15 discussion and/or action on the characteristics and/or 16 profiles of organizations conducting bingo. 17 Mr. Atkins. 18 MR. ATKINS: Thank you, Commissioners. 19 Mr. Sanderson and I will be reporting on this item 20 jointly. Item six, the characteristics or profiles of 21 organizations conducting bingo, is in response to a 22 request you made at the May 3rd Commission meeting. 23 Phil will be providing you with the presentation on 24 the research he has done on the, quote, successful 25 charities in bingo, as was discussed at the last 0069 1 meeting, as well as the, quote, unsuccessful 2 charities. The term "success" was defined as the 3 amount of distributions that a conductor organization 4 made or didn't make as a straight dollar amount, as 5 well as a percentage of net receipts. 6 Before Phil gives his presentation, I 7 was going to provide some information that 8 Commissioner Cox had requested, regarding the location 9 or the counties where bingo is conducted. 10 Pursuant to both the Texas Constitution 11 and the Bingo Enabling Act, bingo is authorized on a 12 local option basis. Bingo elections may authorize the 13 conduct of bingo on a county level, justice precinct 14 level, or at a city or town level. If an election is 15 held at the county level, bingo is assumed to be 16 authorized throughout the county unless the 17 jurisdiction, such as a city or town or a JP precinct, 18 holds an election to prohibit bingo. Likewise, you 19 could have one city within a county hold an election 20 to authorize bingo without any other jurisdiction 21 holding an election. For example, you could have one 22 city where bingo is legal and another city in the same 23 county, five miles down the road, where bingo is not 24 legal. Just for your information, the vast majority 25 of elections to authorize bingo were held in 1982 and 0070 1 1983, shortly after the constitutional amendment was 2 adopted, with the last election to authorize bingo 3 being held in Sterling County in 2003. 4 The first map we have to show you will 5 show counties in red, the 26 counties in which bingo 6 is not legal; that is, there has never been an 7 election at any jurisdictional level to authorize the 8 conduct of bingo games. 9 The next map shows the counties in blue 10 where bingo has been authorized at the county level. 11 This map is followed by a map which 12 shows the counties in stripes where bingo has been 13 authorized at some level below the county level, i.e., 14 either one or more towns or one or more J -- JP 15 precincts. 16 Now, one kind of anomaly, for lack of a 17 better word, that I'd like to point out is a county 18 such as Harris County, right here, which shows being 19 partially legal because bingo elections were conducted 20 at the JP level in Harris County. However, all of the 21 JP precincts in Harris County have held an election to 22 authorize bingo, effectively making the conduct of 23 bingo legal throughout Harris County. But since those 24 elections were held at the JP level, Harris County 25 shows up on this map. 0071 1 Now, finally, our last map shows, in 2 green, the counties where bingo is legal at some level 3 and is being conducted. This map also shows, in blue 4 and in stripes, the 37 counties where bingo is legal 5 at some level but not being conducted. Now, some of 6 the things that we noticed on this map, the first 7 thing we saw was this grouping of counties up in the 8 Texas Panhandle, where bingo had either not been 9 authorized or was authorized but not being conducted. 10 When we reviewed this information with 11 Doctor Sizemore and Mr. Veselka, of the Commission's 12 research staff, one of the explanations for this 13 grouping was the assumed conservative tendency of this 14 region of the state. We believe that may be a factor 15 relating to the larger number of counties where bingo 16 has not been authorized, but not necessarily for the 17 counties where it has been authorized but is not being 18 conducted. 19 We think a more plausible explanation 20 for the counties in the Panhandle where bingo is 21 authorized but not being conducted is the close 22 proximity to the Native American gaming facilities in 23 both Oklahoma and New Mexico. Likewise, this grouping 24 of counties on the east side of the state, where bingo 25 is authorized but not being conducted, we believe may 0072 1 be a result of the casinos in Louisiana. For these 2 reasons, we'll continue to monitor this map for any 3 significant changes in the number of counties where 4 bingo is authorized but not being conducted. 5 When we originally reviewed this map, 6 we were initially concerned with the number of 7 counties where bingo was authorized but not being 8 conducted. However, according to figures from the 9 2006 Texas State Directory, the population of the 10 counties where bingo is not authorized is about 11 189,000. And in the counties where bingo is 12 authorized but is not being conducted, the population 13 is approximately 420,000. This means that 14 approximately 609,000 citizens out of the almost 22.5 15 million people living in Texas reside in a county 16 where bingo is not conducted, which does not appear to 17 be significant to us, given the proximity of 18 neighboring counties where bingo is available. 19 I would be happy to try and answer any 20 questions that you may have before I turn this 21 presentation over to Phil. 22 COMMISSIONER COX: Well, the maps are 23 very interesting, but I think your last comment is the 24 most important, and that is, there is a lot of 25 territory that isn't served, but it doesn't have many 0073 1 people in it. 2 MR. ATKINS: When we looked at the 3 counties, Commissioner Cox, I believe the populations 4 where it's either not authorized or not being 5 conducted ranged from 54 to -- I think the largest one 6 was 36,000. 7 COMMISSIONER COX: So that -- probably 8 largely they just don't have the critical mass, of 9 either concentration of -- of proximity or just in -- 10 in absolute number of people. 11 MR. ATKINS: We agree. And -- and, 12 again, when we first saw this, we were alarmed by it. 13 But after getting down and looking at the numbers, 14 like I say, it didn't seem as significant to us. 15 CHAIRMAN CLOWE: Do you see the typo on 16 the last word? 17 MR. ATKINS: Yes, sir. We'll correct 18 that. 19 CHAIRMAN CLOWE: I don't have any 20 questions. 21 MR. ATKINS: Okay. 22 MR. SANDERSON: Commissioners, once 23 again, for the record, I'm Phil Sanderson, Assistant 24 Director of the Charitable Bingo Operations Division. 25 Commissioner Cox, at the May 3rd 0074 1 Commission meeting, you had asked for a profile of a 2 successful charity, as well as a, quote, unsuccessful 3 charity, that being based on charitable distributions 4 both as a dollar amount and a percentage of net 5 receipts. 6 After consulting with Doctor Sizemore 7 and Mr. Veselka, of the Research department, it was 8 determined to look at the period of 2003 through 2005. 9 And we only used those organizations that conducted at 10 least 12 occasions per year in those three years. 11 Additionally, we excluded those organizations that 12 were members of a unit or participating in unit 13 accounting in 2005. We were anticipating doing 14 additional analysis of those organizations at a later 15 date. 16 The information that is being provided 17 is as reported by the organizations and is unaudited 18 as of May the 12th, 2006. 19 One thing to keep in mind is that the 20 statewide average for all conductors reporting during 21 this time period had distributions percentage, as it 22 relates to net receipts, of 18.8 percent. The regular 23 prize payout percentage was 73.7 percent. And the 24 cost of goods sold, which is the cost of paper, 25 pull-tabs, and electronic card-minders, was 20.3 0075 1 percent. 2 I would like to present to you some 3 basic information that falls into specific categories, 4 and then I will discuss with -- with you at the end 5 the comparison of successful versus unsuccessful. 6 Here you have the first slide, which 7 shows the top five organizations, based on actual 8 dollars distributed. Each slide will have the 9 conductor's name and city, the years of operation, 10 whether they own or lease the premises that they -- 11 where they play, what type of games are played, 12 whether it be regular cards, electronic cards, instant 13 bingo, one or more or all types, whether or not they 14 hold the license to lease bingo premises, the net 15 receipts, and the charitable distributions for the 16 period 2003 through 2005, what percent the 17 distribution is of net receipts, the regular prize 18 payout percentage for regular bingo, and the cost of 19 goods sold as a percentage of net receipts. 20 We looked at the prize percentage for 21 instant bingo and found that there was very little 22 variance between the organizations. Some common 23 characteristics between these organizations are the 24 Saint George Maronite Center and the VFW 6873. Both 25 own the location where they play, as well as lease out 0076 1 to other organizations. Midtown Youth leases the 2 location from a commercial lessor, then they sublease 3 it to additional organizations. The Humane Society in 4 Hidalgo County and the Mission Lions Club both play at 5 a large hall location where they lease. It is 6 interesting to note that these two organizations also 7 play at the same location. 8 All of these organizations play three 9 times per week. They all offer the three types of 10 bingo products -- electronic, paper, and pull-tabs. 11 The three that are conductor lessors, as indicated by 12 yes in the lessor column, have prize payout 13 percentages ranging from 71 to 74 percent. The other 14 two organizations have regular prize payout of 53 and 15 55 percent. The cost of goods sold for all of these 16 organizations ranged from 7.5 percent to 16.8 percent. 17 Additionally, the organizations that are both the 18 conductor and the lessor had substantial rent income 19 over this period, a little over $1 million combined in 20 rental income. The other two organizations, the 21 Humane Society and the Mission Lions Club, were paying 22 the maximum amount of rent allowed, 600 dollars per 23 occasion. 24 COMMISSIONER COX: Okay. Let's -- 25 let's look at this for a minute here, Phil. I'm 0077 1 trying to remember the percentages that you showed us 2 a little bit earlier, that expenses comprised of net 3 receipts on an overall basis. Do you -- do you 4 remember what that was? 5 MR. SANDERSON: Total expenses? 6 COMMISSIONER COX: Yes. 7 MR. SANDERSON: I -- I didn't -- I 8 don't recall having that -- 9 COMMISSIONER COX: You showed total 10 expenses as a percentage of a pie, and I thought you 11 also showed total expenses as a percentage of gross -- 12 of net receipts. 13 MR. SANDERSON: The total expenses 14 slide was as they related to -- how each expense 15 related to total expenses in total. 16 COMMISSIONER COX: Okay. Now, here -- 17 here is cash disbursements, other than prizes, as a 18 percentage of net receipts, the slide before the one 19 you're talking about. 20 MR. SANDERSON: Yes, sir. 21 COMMISSIONER COX: And so in here we 22 add -- so I'm going to start adding up and I'm going 23 to get 22, 42, 60, 70, 77, 81 -- 24 MR. SANDERSON: This is going to add up 25 to a hundred percent because it's just looking at a 0078 1 breakdown of expenses within total expenses. 2 COMMISSIONER COX: Well, that isn't 3 what it says. It says, as a percentage of net 4 receipts. 5 MR. SANDERSON: Historically, that 6 slide has been just of total expenses. 7 COMMISSIONER COX: Okay. Then, let 8 me -- without referring to anything you've told us, 9 about what percentage of net receipts does the entire 10 population run in expenses? 11 MR. SANDERSON: I currently don't have 12 that information, I believe, in front of me, but I 13 can -- I can get it and get back to you on that. 14 COMMISSIONER COX: Okay. What -- what 15 I'm looking at here is, how in the world can you 16 distribute 85 percent unless you're distributing 17 previous years' accumulated income? 18 MR. SANDERSON: That -- that is 19 correct. These -- the -- these numbers are just based 20 on what was reported each quarter. Some of the 21 organizations did have a higher balance or reported a 22 higher balance in their bingo account prior to 2003, 23 and it kind of gradually decreased over the years. 24 There are some organizations where the balance has 25 actually increased over the years. 0079 1 COMMISSIONER COX: So your -- your 2 distribution amount is the amount actually 3 distributed, without regard to the change in the bingo 4 operating account? 5 MR. SANDERSON: That is correct. Yes, 6 sir. 7 COMMISSIONER COX: Wouldn't it be more 8 meaningful if you accounted for that change to get out 9 of this so that we can be comparing on an accrual 10 basis, if you will, the distributions and the net 11 receipts? 12 MR. SANDERSON: We have found that that 13 the -- first off, the bank account balance is not 14 necessarily reported to us. There is a line item 15 called undistributed proceeds -- 16 COMMISSIONER COX: Uh-huh. 17 MR. SANDERSON: -- that should equal 18 the bank -- bank balance. 19 COMMISSIONER COX: Okay. 20 MR. SANDERSON: And during audits of 21 many organizations, we have found that not to be the 22 case. So the -- the line item of undistributed 23 proceeds fluctuates. 24 COMMISSIONER COX: Okay. But clearly, 25 these people are distributing, it looks like in every 0080 1 case, prior years' accumulated. 2 MR. SANDERSON: In some cases. Now, 3 the -- like I said, the first two, Saint George and 4 Midtown, are also conductor lessors, so a -- a 5 percentage of that distribution amount, the dollar 6 amount, is from the rental income that does not show 7 up in net receipts. Net receipts is always just the 8 gross receipts from bingo minus prizes. 9 COMMISSIONER COX: Okay. So -- so 10 we've got apples and oranges up there. 11 MR. SANDERSON: It's -- for example, I 12 think Saint George Maronite had 270,000 -- 297,000 13 dollars in rental income during this period. 14 COMMISSIONER COX: Okay. Okay. So 15 pretty hard to get a set of numbers that's perfectly 16 comparable? 17 MR. SANDERSON: That is correct. Yes, 18 sir. 19 COMMISSIONER COX: Thank you. 20 MR. SANDERSON: This slide shows the 21 top five in distributions as a percentage of net 22 receipts. These all play at their own location. 23 Basically, they play once per week. They have no 24 salary expenses. Two of the organizations, the 25 Immaculate Concepcion Church and the Volunteer Fire 0081 1 Department, only play -- play regular paper or hard 2 cards. The other three play instant as well. And 3 none of these organizations utilize electronic 4 card-minding devices. 5 As you can see, these organizations are 6 not conducting in the big cities. Three are located 7 on the coast, around Victoria and Corpus Christi, 8 while the other two are in north and northeast Texas. 9 And these two are the only conductor in the county 10 within -- where they conduct bingo. As you can see, 11 for the most part, the cost of goods sold is 12 relatively low, and the prize payout percentages does 13 fluctuate between 33 percent for the Volunteer Fire 14 Department, all the way up to 83.9 percent for 15 St. Mary's Church. 16 MR. ATKINS: And, obviously, on this 17 slide, Commissioners, those organizations with a 18 distribution percentage of over a hundred percent are 19 those that have been distributing proceeds from the 20 previous quarter. 21 COMMISSIONER COX: Sure. 22 It looks like, Phil, that all of these 23 are probably conducting in their own facility or a 24 free facility. 25 MR. SANDERSON: Yes. That's what I -- 0082 1 I said that they conducted at their own -- own 2 location that they own. 3 COMMISSIONER COX: Oh, okay. Got it. 4 Yeah. I see that. 5 MR. SANDERSON: Now for the bottom five 6 organizations. This slide is showing the bottom five 7 as it relates to dollars distributed. The VFW 8 Auxiliary and the VFW 2466 both started operations in 9 2003, and they've been paying back money that was 10 transferred from their general fund account to start 11 up bingo operations. However, the prize payout 12 percentage for regular bingo is 96.4 percent and 93.5 13 percent, respectively. The other three organizations 14 have a prize payout percentage of 95 percent, 85 15 percent, and 80 percent. Two of the organizations, 16 the American GI Forum and Merkel Cemetery Association, 17 have a high cost of goods sold of 37.5 percent and 40 18 percent, respectively. 19 This slide indicates the bottom five, 20 based on percentages. Unlike the top five, where you 21 had different organizations in the top five based on 22 dollar amount and percentages, here you have the same 23 five organizations in the bottom five for both, only 24 in a little different order. 25 Finally, there were two organizations 0083 1 that did not make a distribution over this three-year 2 period. This slide shows the Gulf Coast Council of La 3 Raza had a 97 percent payout percentage and a 45 4 percent cost of goods sold. They play in a large hall 5 three times per week. The other organization, VFW 6 2527 Auxiliary, plays once a week, and had an 88.4 7 percent payout percentage and a 3.6 percent cost of 8 goods sold. 9 COMMISSIONER COX: Let me see if I 10 understand. They're paying out 97 percent -- point 11 seven percent of net -- gross receipts as prizes? 12 MR. SANDERSON: Just for regular bingo. 13 COMMISSIONER COX: And they've got a 14 cost of goods sold of 45 percent? 15 MR. SANDERSON: 45 percent of net 16 receipts. The 97 percent is of -- of gross receipts 17 in regular card sales. 18 COMMISSIONER COX: Why are they in 19 business? 20 MR. SANDERSON: They -- the only thing 21 I know is that we've done audits on them, and the -- 22 the expenses that they have reported have been 23 authorized. And based on the distributions formula, 24 they have not been required to make any distributions. 25 COMMISSIONER COX: Mr. Chairman, I 0084 1 don't know what to say about that. 2 CHAIRMAN CLOWE: I don't either. 3 Suzanne, would you come up, please? 4 Now you're going to earn your pay. You're Chairman of 5 the Bingo Advisory Committee, and what Commissioner 6 Cox has asked for is help in understanding what makes 7 halls successful and what makes halls unsuccessful. I 8 think his reaction to this is similar to mine, in that 9 we have seen the best effort on the part of the 10 Division, but in my mind, I haven't heard the answer 11 to the question. 12 MS. TAYLOR: Sir, maybe the location of 13 the bingo hall will help you. This is -- this Gulf 14 Coast Council of La Raza plays at Las Vegas Bingo. 15 The hall is across the parking lot from another bingo 16 hall, so they have very stiff competition. They are a 17 full-pay hall. The hall across the parking lot from 18 them is a half-pay hall with two dollar books and 50 19 cent books. So they are having a hard time. There's 20 actually several charities at that hall, and I don't 21 believe any of them have made distributions when I 22 look at the quarterly reports, and it's because 23 they're barely -- they're eking on. They're hanging 24 on. 25 COMMISSIONER COX: Well, it looks to me 0085 1 like, if I understand those numbers up there, that 2 somebody's funding operating losses. If you're paying 3 out 97.7 percent and have cost of goods sold of 45, 4 that looks like your expenses are 142 percent of your 5 income. 6 MR. SANDERSON: Well, the -- the cost 7 of goods sold percentage is based on the net receipts 8 of 424,000. The prize payout percentage is based on 9 the gross receipts. 10 COMMISSIONER COX: Okay. So 424,000 is 11 97 -- is 2.3 percent of gross receipts, the reciprocal 12 of -- the complement of 97.7. 13 MR. SANDERSON: The gross receipts for 14 this organization over the three-year period was 2.7 15 million. 16 COMMISSIONER COX: Okay. And net 17 receipts -- 18 MR. SANDERSON: And the total net 19 receipts -- 20 COMMISSIONER COX: I don't think that 21 prize payout -- if we -- if we're comparing 424,000 22 and 2.7 million, I don't think 97.7 is the relevant 23 number. 24 MR. SANDERSON: Well, the -- the net 25 receipts, which is, you know, just the gross receipts 0086 1 of 2.7 minus the prize payouts over the period, of 2 2.3, which also includes instant bingo, is where you 3 come up with the 430 -- 424,000. 4 COMMISSIONER COX: Okay. But I'm 5 trying to figure out what 97.7 percent has to do with 6 those two numbers. 7 MR. SANDERSON: Their regular card 8 sales for this period of time was 1.26 million 9 dollars, and the regular prize payout was 1.24 million 10 dollars. So I -- I think in the -- in the conclusion, 11 you can -- when I get to the conclusion, you'll be 12 able to see where the relevance of the prize payout 13 for regular bingo plays in. It goes back to the 14 question you had earlier about the -- the slide that 15 showed regular prize payout of 72.3 percent and how 16 the number is going up is based on the -- the amount 17 of income that they take in for regular bingo. 18 This -- 19 COMMISSIONER COX: Let me -- let me -- 20 let me see if I can get you to simplify this for me. 21 Now -- 22 CHAIRMAN CLOWE: Suzanne, stay there, 23 if you will. We -- we want you in on the conclusion. 24 MS. TAYLOR: Okay. 25 CHAIRMAN CLOWE: Thank you. 0087 1 COMMISSIONER COX: Over on the lottery 2 side, let's just take Lotto Texas. You know, we take 3 in -- we sell tickets, and that's a hundred percent. 4 And we pay prizes, and that's what percentage of -- of 5 that? Gary -- 6 CHAIRMAN CLOWE: Of the dollar? 7 COMMISSIONER COX: -- is it 50 percent 8 or 52 percent that we pay back on Lotto Texas sales to 9 the prize pool? 10 MR. GRIEF: It's now 52. 11 COMMISSIONER COX: 52 percent. Okay. 12 So if I were computing the prize payout for Lotto 13 Texas, I would see 52 in that slot. 14 MR. SANDERSON: That 97.7? Yes, sir. 15 COMMISSIONER COX: But the numbers 16 you're describing to me -- 424,000 is not 2.3 percent 17 of those numbers. 18 MR. ATKINS: That's -- that's -- that's 19 correct, Commissioner Cox. I -- I think Mr. Sanderson 20 said, when he started off, that the prize payout 21 percentage is only for regular bingo. 22 COMMISSIONER COX: That doesn't help me 23 any. And I don't -- what -- since I don't know the 24 mix of regular bingo and other bingo, that's an 25 irrelevant number. 0088 1 MR. ATKINS: Well, the -- the reason 2 that we felt it was relevant was because we didn't see 3 any large discrepancies in the prize payout for 4 instant bingo among all organizations. The only areas 5 where we saw these kind of wide discrepancies was for 6 regular bingo. 7 COMMISSIONER COX: Okay. So what 8 you're saying, I guess, is that these are selected 9 cities -- statistics, and you can't make an income 10 statement out of it? 11 MR. ATKINS: We -- per your directions, 12 we did not do any primary research. We only used the 13 data that we had readily available to us, as -- as 14 submitted by the organizations. 15 COMMISSIONER COX: Okay. So what 16 you're saying here is that it looks like these folks 17 are paying back an inordinately high percentage of 18 their ticket sales, their paper sales, in prizes. 19 MR. SANDERSON: Yes, sir. 20 COMMISSIONER COX: Not that they're 21 paying out 97.7 percent of sales. 22 MR. SANDERSON: That is correct. Their 23 instant -- their instant ticket prize payout 24 percentage is around 73 to 75 percent. 25 COMMISSIONER COX: Kind of what we saw 0089 1 everywhere? 2 MR. SANDERSON: Yes, sir. 3 COMMISSIONER COX: But instead of 72 or 4 73 percent on the other side, on the left-hand side of 5 your slide, you would see 97.7 -- 6 MR. SANDERSON: Yes, sir. 7 COMMISSIONER COX: So -- and Suzanne 8 tells us -- and you're from Corpus Christi, I believe? 9 MS. TAYLOR: Yes, sir. 10 COMMISSIONER COX: So you know that 11 market pretty well. 12 MS. TAYLOR: Yes, sir. 13 COMMISSIONER COX: That this is just a 14 highly competitive situation, and, in effect, they're 15 having to buy business? 16 MS. TAYLOR: Absolutely. 17 COMMISSIONER COX: Thank you, 18 Mr. Chairman. 19 CHAIRMAN CLOWE: And -- and Suzanne, 20 would that same kind of comment apply to the list of 21 operators or the list of charities that Phil and Billy 22 listed for us, that you would almost have to know each 23 one of them individually to understand what their 24 numbers represent beyond a pure statistical analysis? 25 MS. TAYLOR: I believe so. You would 0090 1 need to know where they were located, what their 2 competition was doing, and what other organizations 3 were in the hall. This -- this is Las Vegas Bingo, 4 and there's -- if you look at the other organizations 5 within the hall, I'm sure you're going to find that 6 the statistics are pretty close to the same thing. 7 It's not just one organization. It's the location of 8 this particular bingo hall. When they opened up, they 9 were under the assumption that the hall that's across 10 the parking lot was closing, but that hall changed 11 their mind, so they've both remained open. 12 COMMISSIONER COX: And they're leasing 13 these from a commercial lessor? 14 MS. TAYLOR: The one hall, I believe, 15 is a charity hall. I believe at this time that they 16 are using a commercial lease. However, it's really 17 all charities in the hall, and Doctor Garza 18 actually -- the Gulf Coast Council of La Raza used to 19 have a lease, and I believe now they're using a 20 commercial lease. But it's actually charitable 21 organizations in there that are using a commercial 22 lease. 23 CHAIRMAN CLOWE: So you have the 24 variables of the location as it relates to 25 competition, the location as it relates to the 0091 1 population, and the percentage of the population that 2 comes to play bingo; you've got the mix of offerings, 3 whether it's instant, paper, or electronic; and you've 4 got the expenses relative to leasing or ownership, as 5 it impacts the gross revenue. 6 MS. TAYLOR: One more item. Is it a 7 full-pay hall, or is it a half-pay hall? 8 COMMISSIONER COX: And what does that 9 mean? 10 MS. TAYLOR: In some halls -- this -- 11 this particular hall offers no half-pay books. And a 12 lot of the halls in Corpus and the hall they're 13 competing with, we have some -- you have half-pay -- 14 people can come in, and they can buy a full-pay book. 15 It's like -- I -- I have not been to Oklahoma, but, I 16 guess, where you can buy different levels of games as 17 to what your payout is going to be. In some halls, 18 you have all level one payout, and some halls you have 19 level one or you have a level two payout, where you 20 play on a cheaper book, then you only win half the 21 prize. So, therefore, the payouts in that hall are 22 going to be less because, instead of those 750 games, 23 you might save, you know, a thousand dollars in a 24 session on prizes that, you know, if everybody had 25 played a full-pay book, then you would have paid out 0092 1 25. But because the -- some people did not or you 2 have a mix of what you paid out, you could be paying 3 out 1250 dollars up to that 2500. 4 COMMISSIONER COX: Got you. Okay. 5 CHAIRMAN CLOWE: So we're into 6 analyzing a business activity here. And we have some 7 numbers, but the numbers don't really, in my mind, as 8 projections, enable us to go into businesses and 9 really understand them unless we have somebody like 10 Suzanne, who is able, based on her business experience 11 and her knowledge, to say, well, now here is why 12 they're doing what they're doing, and explain that to 13 me. 14 COMMISSIONER COX: Something I would 15 like to do, if we could, Mr. Chairman, is the -- the 16 most successful one was in San Antonio. And Kimberly 17 is from San Antonio. I wonder if she could help -- 18 CHAIRMAN CLOWE: That would be very 19 helpful. 20 COMMISSIONER COX: Can you tell us 21 anything about that organization in San Antonio that 22 was so successful? 23 CHAIRMAN CLOWE: And -- and, Kimberly, 24 we're calling on you as a member of the Bingo Advisory 25 Committee. You're not doing this as an individual. 0093 1 But based on your knowledge of the industry, we're 2 asking you to fulfill a function of the BAC to a -- a 3 level of specifics that you're aware of and 4 comfortable with. 5 MS. ROGERS: Okay. 6 CHAIRMAN CLOWE: Don't tell us anything 7 that's proprietary or is confidential, please. 8 MS. ROGERS: Yes, sir. My name is 9 Kimberly Rogers. 10 The only thing that I do know about 11 this hall is that the individuals that run it own it, 12 of course, which it tells you up there. I don't know 13 a whole bunch about -- they have been in business for 14 a long time. The hall has been there prior to 1994, 15 so they're one of the oldest halls in San Antonio. I 16 believe they are the oldest hall in San Antonio, if 17 I'm not mistaken. They're in an area of San Antonio 18 where you have a tremendous amount of players. They 19 own all their computers, which I'm sure have a system, 20 you know, and -- and things like that. And that's 21 about all I really know of the hall. I think it just 22 helps them in the area that they are and that they've 23 been there for so long. 24 COMMISSIONER COX: Uh-huh. What are 25 the characteristics -- you said they -- they're in an 0094 1 area where there are a lot of players. How would you 2 characterize -- is there any generalization about 3 those folks, as to why there are more players there 4 than there would be in other areas? 5 MS. ROGERS: I think they're in an area 6 where you have -- if I'm not mistaken, they do play 7 some day sessions. You have a lot more individuals 8 who can play during the day, a lot more individuals 9 who are more retired. 10 COMMISSIONER COX: Okay. 11 MS. ROGERS: How about that? You know, 12 that are not -- not the typical -- they have to work 13 from 8:00 to 5:00 -- after 5:00 they have to do 14 everything else that, you know, sometimes they just 15 don't have the time to go play bingo. I think they're 16 more in a -- they're -- they're in an area -- they're 17 in an older part of San Antonio, so I think you 18 have -- 19 CHAIRMAN CLOWE: What part is that, 20 Kimberly? 21 MS. ROGERS: It's off of Fredericksburg 22 Road, which is like the 410 area. It's central. 23 Central. 24 CHAIRMAN CLOWE: Northwest central? 25 MS. ROGERS: It's inside 410. It's -- 0095 1 CHAIRMAN CLOWE: Oh. 2 MS. ROGERS: -- inside 410. So it's 3 more -- it -- it's, you know, where it started, where 4 San Antonio kind of started. You know, if you're 5 familiar with San Antonio at all, Crossroads Mall, one 6 of the oldest malls in San Antonio, it's in that 7 general vicinity. So I think that -- I think that 8 really helps them there. 9 MS. TAYLOR: If I could add to that, no 10 electronic rental. You're probably saving that hall 11 15 to 25,000 dollars a month if they own their own 12 electronic equipment. That's a -- that's a huge chunk 13 because that is going to fall right down to your 14 bottom line. 15 CHAIRMAN CLOWE: Help me remember. Is 16 the restriction on a maximum number of electronic 17 devices lifted now? 18 MR. ATKINS: Yes, sir, it is. 19 CHAIRMAN CLOWE: So they can have as 20 many as they can afford? 21 MR. ATKINS: Yes, sir. 22 CHAIRMAN CLOWE: That's what I -- 23 that's the way I remember it. 24 It -- it looks like to me it's an 25 individual business analysis, and it's hard -- if we 0096 1 were going to start saying, let's open some bingo 2 halls in the state of Texas, we would -- we would go 3 to these folks and say, tell us what you know about 4 the successful ones. I get more comfort from them 5 than I do from that. 6 COMMISSIONER COX: Yeah, that's -- and 7 I -- I think one of the things that Billy and Phil 8 have shown us here is that it's hard to put this on 9 paper. 10 CHAIRMAN CLOWE: Absolutely. 11 COMMISSIONER COX: It's -- it's more of 12 a narrative than a set of numbers. 13 CHAIRMAN CLOWE: And it's a good 14 effort, and we thank you for it, but -- 15 COMMISSIONER COX: Yeah. 16 CHAIRMAN CLOWE: -- but you just really 17 haven't been able to give me the information that 18 these ladies have in -- in their knowledge. You know, 19 it's what is passed around the campfire late at night 20 that is how to run the business. 21 MR. ATKINS: Commissioners, just so you 22 know, one of the things that we had discussed with 23 Doctor Sizemore and Mr. Veselka, but we didn't have 24 time to do it for this presentation, was the 25 possibility of plotting some of these locations on -- 0097 1 or against demographic information for a specific 2 area. But we didn't have the opportunity to follow up 3 with them and get that done before this presentation, 4 just to see if that would add something else, again, 5 like you say, Commissioner Clowe, not having benefit 6 of that campfire conversation, being information that 7 we would have accessible to us that we could apply to 8 this. 9 CHAIRMAN CLOWE: Well, you know, the 10 operation at River City Bingo in this city comes to 11 mind. It's a place where, as I recall, you took me, 12 when I first came on this board, to observe. And you 13 said, now, here is a good operation. And I didn't ask 14 you what "good" meant, but it -- it seemed to be a 15 good operation in the sense that it was orderly, it 16 was clean, it was attractive. And I've looked at 17 their reports since then, and they seem to be good 18 operators in -- in a financial definition sense. Now, 19 that's a little bit different than what we're talking 20 about in the area in San Antonio. From what I recall, 21 this is a strip center in Austin that is wide open, 22 and people come in in their cars from some distance, I 23 think. So there can be, it looks like to me, 24 different formulas for success that we're looking at. 25 It's -- it's interesting to try to get a handle on it. 0098 1 Any other comments, ladies, that would 2 be helpful to us in this discussion? 3 MS. ROGERS: Well, I believe you're 4 correct, Mr. Clowe, in -- in reference to -- I think 5 bingo has a lot to do with your customer -- well, it 6 has everything to do with your customers. And when 7 you have a facility that has been around for a long 8 time and the demographics of the area, you know, they 9 have formed their clientele. That what makes them do 10 so well. You know, I don't know about River City, but 11 that's exactly right. It's -- it's each individual. 12 You know, they've been there for years, and they have 13 their clientele that stay with them because they -- it 14 goes back to good business. They treat them right, 15 and they do the successful things. 16 CHAIRMAN CLOWE: Let me ask you a 17 question. Do -- do people stop going to a bingo hall 18 for various reasons? Do they lose popularity? 19 MS. TAYLOR: Oh, yes. 20 MS. ROGERS: Well, I'm sure. I'm sure. 21 You know, in -- in bingo players -- you know, if -- if 22 they don't win, you know, the -- the big joke in the 23 bingo world is, I'm never coming here again -- 24 CHAIRMAN CLOWE: Uh-huh. 25 MS. ROGERS: -- but I'll see you 0099 1 tomorrow, you know. But I'm sure, like with -- like 2 with anything, you know, you go to one restaurant and, 3 you know, if they don't treat you right or make you 4 upset or -- 5 CHAIRMAN CLOWE: That's exactly what I 6 had in mind. 7 MS. ROGERS: -- you stop going. 8 Exactly.