0001 1 * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 JANUARY 30, 2004 8 9 * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION meeting was held on the 30TH of JANUARY, 19 2004, from 8:30 a.m. to 12:40 p.m., before Brenda J. 20 Wright, RPR, CSR in and for the State of Texas, 21 reported by machine shorthand, at the Offices of the 22 Texas Lottery Commission, 611 East Sixth Street, 23 Austin, Texas, whereupon the following proceedings 24 were had: 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. Rolando Olvera Mr. James A. Cox, Jr. 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Mr. Reagan E. Greer 9 Deputy Executive Director: 10 Mr. Gary Grief 11 Charitable Bingo Executive Director: Mr. Billy Atkins 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances.................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................. 4 6 Item Number 2.................................. 4 Item Number 3.................................. 6 7 Item Number 4.................................. 13 Item Number 5.................................. 15 8 Item Number 6.................................. 16 Item Number 7.................................. 19 9 Item Number 8.................................. 21 Item Number 9.................................. 24 10 Item Number 10................................. 46 Item Number 11................................. 48 11 Item Number 12................................. 52 Item Number 13................................. 52 12 Item Number 14................................. 53 Item Number 15................................. 54 13 Item Number 16................................. 69 Item Number 17................................. 70 14 Item Number 18................................. 83 Item Number 19................................. 89 15 Item Number 20................................. 115 Item Number 21................................. 103 16 Item Number 22................................. 104 Item Number 23................................. 106 17 Item Number 24................................. 106 Item Number 25................................. 107 18 Item Number 26................................. 108 Item Number 27................................. 111 19 Item Number 28................................. 111 Item Number 29................................. 115 20 Item Number 30................................. 132 Item Number 31................................. 134 21 Item Number 32................................. 123 Item Number 33................................. 125 22 Item Number 34................................. 130 Item Number 35................................. 120 23 Reporter's Certificate......................... 135 24 25 0004 1 JANUARY 30, 2004 2 3 CHAIRMAN CLOWE: Good morning. If 4 everyone will be seated, we'll call the meeting to 5 order. It is 8:32 a.m., January the 30th, 2004. The 6 Texas Lottery Commission will come to order. 7 Commissioner Cox is here. My name is Tom Clowe. 8 Commissioner Olvera is en route and should be here 9 within the hour, so we have a quorum and we'll begin 10 with consideration of and possible discussion and/or 11 action, including adoption, on a rule review of 16 12 TAC Chapter 402, concerning bingo regulation and tax. 13 It's item number two on the agenda. General Counsel, 14 I believe this is yours. 15 MS. KIPLIN: Yes, thank you. 16 Commissioner, if you'll recall, at an 17 earlier meeting, you voted to propose the rule review 18 of Chapter 402 for public comment. The purpose of 19 the rule review is to require each State agency to 20 review and consider for re-adoption the two general 21 rules every four years, and it's required by statute. 22 The review must include an assessment of whether the 23 reasons for initially adopting the rules continue to 24 exist. The notice of intention to review was 25 published in the Register, comment was received, both 0005 1 in written format and at a comment hearing. The 2 comment was that the -- there were -- the reasons why 3 the rules were initially adopted do continue to 4 exist. But there is an interest and a desire to 5 revise certain aspects or provisions of the rules, 6 with the exception of one rule. One commenter 7 indicated that Section 402.542 relating to 8 investigation of applicants for licenses was not 9 necessary since the Commission already had the 10 statutory authority that was embodied in that rule. 11 The staff took a look at that and did agree with the 12 commenter, and so today, the staff is requesting that 13 you vote to adopt the rule review which will re-adopt 14 all of the rules within Chapter 402 of Title 16, with 15 the exception of Section 402.542. 16 I would be happy to answer any 17 questions you might have. 18 CHAIRMAN CLOWE: Mr. Atkins, do you 19 have anything to add? 20 MR. ATKINS: I don't, Mr. Chairman. 21 CHAIRMAN CLOWE: I don't believe there 22 are any questions. I move the adoption. 23 COMMISSIONER COX: Second. 24 CHAIRMAN CLOWE: All in favor, please 25 say aye. Opposed, no. 0006 1 The vote is two-zero in favor. 2 MS. KIPLIN: Commissioners, I have an 3 order for your signature. 4 CHAIRMAN CLOWE: The next item, number 5 three, is consideration of and possible discussion 6 and/or action, including adoption, on new Rule 16 TAC 7 402.590 relating to general audits. 8 MR. OLDHAM: Good morning, 9 Commissioners. For the record, my name is 10 Kevin Oldham. I'm an Assistant General Counsel here 11 at the Lottery Commission. 12 Commissioners, you have -- at tab 13 three of your notebook, you have for your 14 consideration, and possible discussion, both the 15 general audit rule, adoption of the general audit 16 rule. If I may, I would like to give you a little 17 background on this rule, just to bring you forward to 18 the events that have occurred prior to today. This 19 rule was presented to the Bingo Advisory Committee, 20 first on June 19th, 2003, and at that meeting the 21 Bingo Advisory Committee appointed two members to 22 participate in a working group along with Commission 23 staff and members of the public, and then that 24 working group, had input on language of this draft 25 rule through that process. The draft rule was then 0007 1 considered by the Bingo Advisory Committee a second 2 time on August 21st, 2003. At that meeting, the 3 Bingo Advisory Committee voted to recommend that the 4 Lottery Commission not publish that version of the 5 draft rule in the Texas Register for public comment, 6 but with some changes. Those changes were made. Due 7 to informal comment, several of those issues were 8 addressed at the previous commission meeting in 9 October. 10 Subsequent to that Bingo Advisory 11 Committee meeting, members of the working group 12 continued to work together on several issues related 13 to confidentiality of records held by licensees and 14 other pertinent issues. It was -- the rule was 15 presented to the Commission at the October 16th, 2003 16 commission meeting, for publication in the Texas 17 Register and for a comment period of 30 days. At the 18 Commission meeting, there were several discussions on 19 the issues and the Commission voted to publish the 20 rule in the Texas Register for a period of 30 days 21 for public comment, and it was actually published on 22 October 31st, 2003. So that was the beginning date 23 of the comment period. 24 Subsequent to that, the commission did 25 receive various oral and written comments on the rule 0008 1 and, in particular, received three letters from 2 members of the legislature, Representative Kino 3 Flores, Senator Eddie Lucio, Junior, and Senator Kip 4 Averitt. In addition, members of the industry were 5 represented and they provided written comment. We 6 also had a public hearing on December 19th, 2003, and 7 in that meeting we received both verbal and written 8 comment. A majority of the comment related to two 9 issues with respect to costs. One, dealing with 10 Subsection E-5 of the rule, which dealt with audit 11 travel costs, and E-4 of the rule, which dealt with 12 costs of copies related to providing records. Based 13 on the comment received, the staff has made various 14 changes to the rule for your -- for your -- as a 15 suggestion to you. I would like to go through those 16 right now, in fact, if I may. 17 Subsection E-5, which related to audit 18 travel costs was deleted. Certain language in 19 subsection D, which related to records required and 20 the type of records that licensees would have to 21 provide, was changed. The prior language stated, if 22 applicable to the licensee, an organization must 23 provide all records pertaining to...and then there 24 was a list of subjects. Based on the comment 25 received, that language was changed to, if applicable 0009 1 to the licensee, it must provide nonconfidential 2 records that pertain to the following and sufficient 3 detail to substantiate compliance with Occupations 4 Code, Chapter 2001. And what that language does is 5 it lessens the amount of records that an organization 6 may have to provide at the beginning of an audit 7 period. Instead of providing all their records that 8 relate to a particular item, it would just be those 9 records that they need to provide in order to 10 substantiate compliance with the Bingo Enabling Act. 11 Also, the rule was changed, Subsection 12 G-2 was changed to add a sentence that said, in 13 addition to the licensee's representative, the 14 licensee may allow other persons to attend the exit 15 conference. There was some concern that with the 16 current -- the prior language of the rule, that the 17 Commission was trying to limit the number of people 18 that could attend an exit conference. The staff and 19 the public discussed that and decided, as long as 20 there is a representative there who has knowledge of 21 the bingo activity of an organization, then they can 22 allow other people to also attend the exit 23 conference. 24 In addition, Subsection G-3 of the 25 rule was amended to add "alleged" in front of the 0010 1 terms "violations and audit violations." And this 2 basically goes to the fact that the Commission, after 3 a hearing, has the determination of whether an actual 4 violation occurred, not at this point during an 5 audit. So that was changed. 6 In addition, Subsection G-4 of the 7 rule was changed, and that section dealt with the 8 rule would provide that each organization would have 9 to make available the copy of the audit findings 10 and -- to each member. And there was some comment 11 that said that that might create a problem with other 12 law, and so we provided the -- we prefaced that 13 statement with, unless provided otherwise by law. So 14 basically, to protect against if there is any other 15 legal restriction on the organization, such as 16 confidential records that could be contained in the 17 audit findings, then they would be able to redact 18 that according to other law. 19 I believe that the change, the 20 deletion of subsection E-5 did address many of the 21 concerns that we received, many of the comments that 22 we received. There is still an outstanding issue 23 with the industry as related to the costs that 24 licensees may incur when they provide records at the 25 beginning of an audit. Subsection E-4 of the rule -- 0011 1 I'll turn there and read it verbatim because I do not 2 want to misquote it. It's on page 16 of your -- I 3 numbered the pages in your book. It should be on 4 page 16. It states that the auditor and the 5 licensee's authorized representative will sign a 6 receipt form documenting the specific original 7 records received by the auditor. Alternatively, the 8 licensee may provide the auditor with copies of all 9 requested records at the expense of the licensee. 10 And there was some concern voiced by the industry 11 that this was different from current commission 12 practice, bingo hearing and bingo audits, and it is 13 the staff's position that it's really consistent with 14 current practice. And I understand that there is 15 some concern in the industry that maybe somewhere 16 down the line, the Commission -- an auditor may act 17 unreasonably or use this language in an unreasonable 18 manner against one of their organizations. I tried 19 to talk with the industry and discuss this issue with 20 them, and it's the staff's position that there needs 21 to be a requirement that the records are provided and 22 audited, that the records are needed to be in an 23 audit. I spoke with two auditors at the Comptroller 24 of Public Accounts. I spoke with a auditor at the 25 Texas Alcoholic Beverage Commission, I spoke with an 0012 1 auditor with the Internal Revenue Service, and based 2 on my communications with them, it was -- it was 3 understood that this language is consistent with 4 their practices as well. And I think it meets the 5 needs -- or the staff believes that it meets the 6 needs of the rule, of the Bingo Division, while not 7 being unreasonable to the industry. 8 I'll be happy to answer any questions 9 on that issue or any other issue if you have any. 10 Otherwise, the staff does recommend that we adopt the 11 rule before you today and place it in a -- sorry. 12 Adopt the rule today, and I have an order for you to 13 sign. I'll be happy to answer any questions. 14 CHAIRMAN CLOWE: Mr. Atkins? 15 MR. ATKINS: I don't have much to add, 16 Commissioners. I do appreciate the work that 17 Mr. Oldham has put into this rule, in addition to the 18 bingo staff, members of the advisory committee, as 19 well as industry representatives, to get us to this 20 point. I think this is a very important rule in 21 order to provide licensees with uniform audit 22 guidelines. 23 COMMISSIONER COX: Kevin, I think the 24 work you've done in talking to other groups who 25 audit, and find out what their practices are is very 0013 1 appropriate work, and I commend you for thinking of 2 that and following through with that. That is very 3 helpful to me in deciding whether this is an 4 appropriate rule to make. 5 MR. OLDHAM: Thank you, Commissioner. 6 I can't take all the credit for that. The Bingo 7 Division is really in the lead on that. 8 CHAIRMAN CLOWE: Move adoption. 9 COMMISSIONER COX: Second. 10 CHAIRMAN CLOWE: All in favor, aye. 11 Opposed, no. The vote is two-zero in favor. 12 MR. OLDHAM: Commissioners, may I 13 approach with the order? 14 CHAIRMAN CLOWE: Certainly. The next 15 item you have as well, so we'll sign this order and 16 then ask you to begin number four, consideration of, 17 possible discussion and/or action, including 18 adoption, on new Rule 16 TAC 402.592, relating to 19 books and records inspections. 20 MR. OLDHAM: Thank you, Commissioners. 21 The books and records inspection rule is also related 22 to the audit practices of the Charitable Bingo 23 Division, and this rule also began at the Bingo 24 Advisory Committee. And at that time, a working 25 group was formed with members of the Bingo Advisory 0014 1 Committee, members of the industry, and staff to 2 create a rule that was beneficial to all parties in 3 order to achieve the purposes of the Bingo Enabling 4 Act. Comment was received at both the June 19th, 5 2003 Bingo Advisory Committee and the August 21st, 6 2003 Bingo Advisory Committee. The Bingo Advisory 7 Committee recommended that the Texas Lottery 8 Commission publish the rule in the Texas Register for 9 public comment for a period of 30 days. At the 10 October 31st, 2003 Commission meeting, the Commission 11 did propose the rule and ordered that the rule be 12 published in the Texas Register for a comment period 13 of 30 days. During the comment period, the 14 Commission received no public comment on these 15 rules -- on this rule. And based on that, the 16 Commission -- the staff recommends that the 17 Commission adopt the rule, and I have an order for 18 you to sign. 19 CHAIRMAN CLOWE: Mr. Atkins, do you 20 have anything to add? 21 MR. ATKINS: I don't, Commissioner. 22 CHAIRMAN CLOWE: Move the adoption. 23 COMMISSIONER COX: Second. 24 CHAIRMAN CLOWE: All in favor, please 25 say aye. Opposed, no. The vote is two-zero in 0015 1 favor. 2 MR. OLDHAM: Commissioners, may I 3 approach? 4 CHAIRMAN CLOWE: Then you have the 5 next item, number five, consideration of and possible 6 discussion and/or action, including adoption, on new 7 Rule 16 TAC 402.596, relating to compliance reviews. 8 MR. OLDHAM: Thank you, Commissioners. 9 This rule -- the track this rule took was very 10 similar to the books and records inspection rule. It 11 was addressed at both the June 19th and the August 12 21st Bingo Advisory Committee. It was recommended 13 for publication in the Texas Register for public 14 comment for a period of 30 days. At the October 15 31st, 2003 Commission meeting, the Commission did 16 take that advice and publish the rule in the Texas 17 Register. The actual date of publication was October 18 31st, 2003. The Commission received no comment on 19 this rule during the comment period. And at this 20 time, staff recommends -- without changes, as it was 21 brought to you in a proposed form, the staff 22 recommends that you adopt the rule. 23 CHAIRMAN CLOWE: Mr. Atkins? 24 MR. ATKINS: No comment. 25 CHAIRMAN CLOWE: Move the adoption. 0016 1 CHAIRMAN COX: Second. 2 CHAIRMAN CLOWE: All in favor, please 3 say aye. Opposed, no. The vote is two-zero in 4 favor. 5 We'll sign your order now, and then 6 we'll move on to item six, consideration of and 7 possible discussion and/or action, including 8 adoption, on new Rule 16 TAC 402.530, relating to 9 registry of approved bingo workers. 10 And this is your last day, I think, 11 with the Lottery Commission, and we want to 12 acknowledge that and thank you for your service and 13 wish you well in your new endeavor. 14 MS. WILKOV: Thank you. It's quite a 15 last day here. Anyway. All right. For the record, 16 Commissioner, my name is Penny Wilkov, and I'm 17 Assistant General Counsel with the Texas Lottery 18 Commission. 19 We are here regarding a proposed Rule 20 16 Texas Administrative Code, 402.530, and that's 21 relating to the registry of approved bingo workers. 22 This rule is an outgrowth of House Bill 2519, and it 23 provides an administrative framework for the 24 application of the statute. By way of background, a 25 working group was formed after the June 19th Bingo 0017 1 Advisory Committee meeting, composed of staff, 2 industry representatives, and subcommittee members of 3 the Bingo Advisory Committee. After a presentation 4 to the Bingo Advisory Committee on August 21st, 2003, 5 numerous revisions, drafts, suggestions, meetings 6 ensued that were there to address suggestions and 7 areas of concern that were raised by BAC subcommittee 8 members and industry representatives. And the rule 9 was once again circulated with the resultant 10 inclusion of many of these suggestions and comments. 11 You voted to publish this rule for a 30-day comment 12 period at your October 16th, 2003 meeting. The 13 proposed rule was published in the October 31st, 2003 14 issue of the Texas Register. A public hearing was 15 held on December 19th, 2003, to receive both written 16 and oral comment regarding adoption of this new 17 section. The comment period ended on December 19th, 18 2003. Comment was received, which you have had an 19 opportunity to review. You have also reviewed the 20 draft rule for adoption. The agency responses are 21 contained in the draft rule for adoption, which you 22 have also had an opportunity to consider. The staff 23 is at a point now of recommending that you do adopt 24 the new rule, 16 Texas Administrative Code, 402.530, 25 relating to the registry of approved bingo workers. 0018 1 As you can see, the commenters have not indicated 2 their opposition to the rule but, instead, have 3 expressed statements of opposition to certain 4 provisions of the proposed rule. The staff has 5 agreed with some of the comment and made changes 6 accordingly. However, these changes do not create a 7 different rule or affect an individual who would not 8 have been impacted or impose more stringent 9 requirements such that the rule would need to be 10 republished. However, the staff has not agreed on 11 all suggestions, and we have provided reason 12 justification for not making these change. 13 The staff recommends that you adopt 14 the rule, and at this point, the staff and I will be 15 happy to answer any questions you may have regarding 16 this matter. And I have the order, which I can bring 17 forward or... 18 CHAIRMAN CLOWE: Mr. Atkins? 19 MR. ATKINS: Commissioners, this is 20 another important rule, and I appreciate everyone who 21 worked on it. As you know, we have had on our 22 website, since September of last year, a registry of 23 approved workers, as required by House Bill 2519, now 24 the Bingo Enabling Act. And this rule will help us 25 further, I believe, by establishing an administrative 0019 1 framework to maintain that registry. 2 CHAIRMAN CLOWE: Move the adoption. 3 COMMISSIONER COX: Second. 4 CHAIRMAN CLOWE: All in favor, please 5 say aye. Opposed, no. The vote is two-zero in 6 favor. And we will sign the order and then take the 7 next item, I think you have as well, number seven, 8 consideration of and possible discussion and/or 9 action, including adoption, on new Rule 16 TAC 10 402.531, relating to advisory opinion. 11 MS. WILKOV: Yes, I do, Commissioner. 12 This is regarding proposed rule 16 Texas 13 Administrative Code 402.531, relating to advisory 14 opinions. This rule, again, is an outgrowth of House 15 Bill 2519, and provides an administrative framework 16 for the application of the statute. By way of 17 background, the staff first presented this rule at 18 the August 21st, 2000 meeting of the Bingo Advisory 19 Committee. The BAC voted to recommend that the Texas 20 Lottery Commission publish the rule, with 21 consideration of the remarks and suggestions offered 22 in the public comment portion by one commenter. 23 Working closely with the commenter, the staff 24 addressed the areas of concern raised at that 25 meeting. Now, you voted to publish this rule for a 0020 1 30-day comment period at the October 16th, 2003 2 Commission meeting, and the rule was published in the 3 October 31st, 2003 issue of the Texas Register. A 4 public hearing was held on December 19th, 2003, to 5 receive both written and oral comment regarding 6 adoption of this new section, and the comment period 7 ended on December 19th, 2003. Again, you have had 8 had this comment, which you have had an opportunity 9 to review, and the draft rule, and the staff is at a 10 point now of recommending that you do adopt the new 11 rule, and that is 16 Texas Administrative Code, 12 402.531, relating to advisory opinions. And as you 13 have seen, the comment -- the one commenter has not 14 indicated his opposition to the rule, but instead has 15 expressed a statement of opposition to certain 16 provisions of the proposed rule. And the staff has 17 agreed with some of the comment and made changes 18 accordingly. However, it does, again, create a 19 different rule where it would need to be republished. 20 However, the staff has not agreed on all suggestions 21 and we have provided justification for not making the 22 change. So the staff is at a point where we are 23 recommending that you adopt the rule. And I'll be 24 happy to answer any questions. 25 CHAIRMAN CLOWE: Mr. Atkins? 0021 1 MR. ATKINS: No comment. 2 CHAIRMAN CLOWE: Move the adoption. 3 COMMISSIONER COX: Second. 4 CHAIRMAN CLOWE: All in favor, please 5 say aye. Opposed, no. The vote is two-zero in 6 favor. We'll sign your order and then move to item 7 number eight, consideration of and possible 8 discussion and/or action, including adoption, on new 9 Rule 16 TAC 402.573, relating to gift certificates. 10 MS. WILKOV: All right. We're here 11 regarding 16 TAC 402.573, relating to gift 12 certificates. By way of background, this rule, 13 again, is a byproduct of House Bill 2519, and it -- 14 this provides an administrative framework for the 15 application of the statute. 16 By way of background, the Bingo 17 Advisory Committee appointed a subcommittee to 18 address the issue at their June 19th, 2003 meeting. 19 A working group was formed with industry 20 representatives, staff, and a subcommittee. And a 21 draft of the rule was presented to the Bingo Advisory 22 Committee meeting on August 21st, 2003. The BAC 23 voted to recommend that the Texas Lottery Commission 24 publish the rule with consideration of the remarks 25 and suggestions offered in the public comment portion 0022 1 of this meeting. After further meetings among staff, 2 industry representatives, and the BAC subcommittee 3 members, in consideration of the remarks and 4 suggestions, a revised rule was drafted. And you 5 voted to publish this rule for a 30-day comment 6 period at your October 16th, 2003 Commission meeting. 7 The rule was published in the October 31st, 2003 8 Texas Register, and a public hearing again was held 9 on December 19th, 2003, to receive both written and 10 oral comment concerning adoption of this new section. 11 The comment period ended on December 19th, 2003. You 12 have had an opportunity to review the comment, the 13 draft rule for adoption, and the agency responses 14 that were contained in the draft rule for adoption. 15 The staff is now at a point of recommending that you 16 do adopt the new rule, 16 Texas Administrative Code, 17 402.573, relating to gift certificates. Again, the 18 commenters have not indicated their opposition to the 19 rule but have stated statements of opposition to 20 certain provisions of the rule. The staff has agreed 21 with some of these comments and made the changes. To 22 those we did not agree with, we provided reason 23 justification. And the changes that we did make to 24 the rule did not create a different rule, impact an 25 individual, or impose more stringent requirements 0023 1 where it would need to be republished. We're at a 2 point where we are recommending that you adopt the 3 rule, and I'll be happy to answer any questions you 4 may have. 5 CHAIRMAN CLOWE: Mr. Atkins? 6 MR. ATKINS: Commissioners, this is a 7 rule that we're very excited about. You may 8 remember, Mr. Chairman, it might have been before 9 your time, Commissioner Clowe, this is an item that 10 we have been working on for quite some time. And we 11 hope that with the introduction of gift certificates, 12 organizations will be able so see an opportunity to 13 help increase their sales and, hopefully, 14 participation in bingo games. 15 CHAIRMAN CLOWE: You meant to say 16 Commissioner Cox, didn't you? 17 MR. ATKINS: Probably. What did I 18 say? Commissioner Clowe? 19 CHAIRMAN CLOWE: If it was before my 20 time, it was before his time. Maybe that was an 21 all-inclusive statement. 22 Questions? 23 Move the adoption. 24 COMMISSIONER COX: Second. 25 CHAIRMAN CLOWE: All in favor, please 0024 1 say aye. Opposed, no. The vote is two-zero in 2 favor. Penny, we'll sign your order and I think that 3 completes your work. 4 MS. WILKOV: Yes, it does. 5 CHAIRMAN CLOWE: Thank you again. 6 We're going to stand recessed for a 7 very short period, and then come back to order in 8 about five minutes. 9 (RECESS.) 10 CHAIRMAN CLOWE: We're coming back to 11 order, please. The next item on the agenda is number 12 nine, consideration of and possible discussion and/or 13 action, including -- oh, I'm sorry. Consideration 14 of, possible discussion and/or action relating to the 15 continuation of the Bingo Advisory Committee. 16 Mr. Atkins, are you going to lead the 17 discussion on this item? 18 MR. ATKINS: I do, Commissioners. I 19 have some background information for you. 20 Commissioners, Charitable Bingo Administrative Rule 21 402.567(j) states, the BAC will automatically be 22 abolished and cease to exist on March 6th, 2004. The 23 BAC shall only remain in existence beyond March 6th, 24 2004 if the Commission affirmatively votes to 25 continue the Bingo Advisory Committee in existence. 0025 1 This item has been placed on the agenda today for 2 your consideration and action prior to this 3 expiration date. 4 By way of background, you may recall 5 that the Commission amended Charitable Bingo 6 Administrative Rule 402.567 relating to the Bingo 7 Advisory Committee in February 2003. Some of those 8 amendments incorporated recommendations by the Sunset 9 Commission staff and included Section 567(e), which 10 addressed recommendation 7.1, that the BAC develop an 11 annual work plan addressing specific issues for the 12 BAC to consider, Section 567(l), which addressed 13 recommendation 7.3, that the Commission evaluate the 14 necessity of the Advisory Commission, and 15 Section 567(c), which addressed two recommendations; 16 recommendation 5.7, that member terms be lengthened 17 and then staggered, as well as recommendation 7.6, 18 relating to membership requirements. 19 One recommendation from the Sunset 20 staff report dealt with balance between public 21 members on the Advisory Committee, as well as 22 industry representatives. Again, this was an item 23 that was available for comment during the rulemaking 24 period. As you may recall, no comments were received 25 on that particular section. 0026 1 One other Sunset recommendation 2 included the assignment of a staff attorney to 3 monitor BAC meetings, and that has been implemented 4 in August of 2002. 5 Finally, Sunset recommended the 6 elimination of the SSP position on the advisory 7 committee, but that recommendation would require 8 statutory action, so staff has taken no further 9 action on that item. 10 On February 28th, 2003, the Commission 11 adopted a work plan for the Bingo Advisory Committee 12 that had been developed with input from the BAC, 13 industry representatives, and the staff. That work 14 plan identified nine items for the BAC to address 15 during the coming year. A copy of the BAC work plan 16 is located on the agency's website and included items 17 that the BAC has already addressed this year, 18 including the review of the Bingo Bulletin, survey of 19 bingo players, a review of the bingo website, and 20 comment on proposed administrative rules. Some of 21 the items on the work plan that the BAC hasn't 22 addressed yet include a review of the operator 23 training program, a review of charitable bingo forms, 24 a review of the bingo operations manual, and a report 25 to the Commission on the improvement and status of 0027 1 the bingo industry. The BAC did appoint a work group 2 to study alternative styles of bingo play not 3 currently available in Texas, which was an item on 4 the work plan in June -- at their June 19th, 2003 5 meeting, but that work group has not met yet. 6 Also, as you know, Commissioners, the 7 work plan was developed in such a way as to be 8 flexible and allow for additional items should they 9 need to be considered. One example of this was an 10 item to consider smoking bans by local jurisdictions, 11 which I believe you requested, Mr. Chairman, that the 12 advisory committee look into. Contemporaneously with 13 the proposal and adoption of the BAC work plan, the 14 staff developed and presented to the BAC an 15 orientation program at their February 27th, 2003 16 meeting. The orientation program covered such items 17 as the definition of terms that are commonly used at 18 the State agencies and in regulatory structures, the 19 purpose of the Lottery Commission versus the Bingo 20 Advisory Committee, the objective of the Bingo 21 Advisory Committee in terms of enhancing information 22 from the bingo industry to the Commission, the 23 responsibility of BAC members. We discussed the 24 different job descriptions and roles of BAC members, 25 the BAC chair and vice-chair, as well as staff. We 0028 1 discussed a number of methods that could be utilized 2 to make the BAC meetings more efficient. And, 3 finally, we discussed the work plan in some detail. 4 In terms of cost, the Charitable Bingo 5 Operations Division has estimated that the costs 6 related to the BAC for fiscal year 2003 are between 7 approximately 50 and 60,000 dollars. These costs 8 include staff time to prepare for and attend BAC 9 meetings, and in rare cases, there have been some 10 travel costs for staff members coming from regional 11 offices, copy costs for the preparation of materials 12 for committee meetings, court reporters, and, where 13 applicable, BAC travel costs. I would be happy to 14 answer any questions you may have. I also believe 15 Ms. Kiplin has other statutory cites that may be of 16 use to you. 17 MS. KIPLIN: Commissioners, I gave you 18 each a package. One is the statute relating to 19 advisory committees, one is the statute in the Bingo 20 Enabling Act on this particular advisory committee, 21 and then there is the rule, the bingo rule creating 22 the Bingo Advisory Committee. 23 The statute, just by -- for 24 information, does indicate on the second page, under 25 subsection A, that the advisory committee will 0029 1 automatically be abolished unless you designate a 2 date by rule. And you can continue the committee in 3 existence after that date only if you amend the rule 4 to provide for a different abolishment date. We did 5 comply with this originally, and there is a date of 6 abolishment in the Bingo Advisory Committee rule or 7 the Charitable Bingo rules, and that date is -- I 8 believe it's March 6th, 2004. So if you were to want 9 to continue the committee after today, you do need to 10 affirmatively vote to continue the committee in 11 existence, and then we will bring forward, and I'm 12 anticipating this would be at the next meeting, a 13 proposed rule amendment to change the date for the 14 next consideration of abolishment. 15 The other thing that I would bring to 16 your attention, on the first page of the general law, 17 on 2110.006, is that a State agency that does 18 establish an advisory committee shall evaluate, 19 namely, three things; the committee's work, the 20 committee's usefulness, and then the costs related to 21 the committee's existence, including the cost of 22 agency staff time spent in support of the committee's 23 activities. That information that's developed in 24 that evaluation then is to be filed with the agency's 25 request for appropriations bi-annually. I don't 0030 1 necessarily think that they're tied hand in hand in 2 terms of your vote to continue in existence, but I 3 did want to bring to your attention the statutory 4 requirements of conducting this evaluation and then 5 filing it as part of the agency's appropriation 6 request. 7 CHAIRMAN CLOWE: Under this notice, we 8 are authorized to have a generalized discussion on 9 the subject today, so if I understood you correctly, 10 we have to notice up for a future meeting a vote on 11 the extenuation of the BAC. Is that correct? 12 MS. KIPLIN: No. Today we are looking 13 for you all to vote to extend the committee if that's 14 what you want, and we'll move forward with the rule, 15 but you don't have to. You know, we have until 16 March 6th, so -- 17 CHAIRMAN CLOWE: I understand. So we 18 can have the discussion and we can have the vote 19 today if that's the Commission's -- 20 MS. KIPLIN: That's right. And then 21 we would move forward in February to bring you a rule 22 proposal. 23 CHAIRMAN CLOWE: I just wanted to 24 understand where we were. 25 I don't see the chair of the BAC in 0031 1 the audience. Is she here? I'm sorry that she 2 isn't. I would have liked to have her comment. I 3 see representatives of the bingo industry in the 4 audience. Is there anyone that would like to make a 5 comment, as I'm informed that the notice is proper 6 for us to have a discussion. So I would invite 7 anyone who would like to make a comment on this to 8 come forward. 9 Good morning. 10 MR. FENOGLIO: Good morning, 11 Mr. Chairman, Commissioner Cox. For the record, my 12 name is Stephen Fenoglio. I have not filed an 13 appearance form, but I will. 14 I represent over 950 charitable and 15 business organizations. We support the continuation 16 of the BAC. There was a period of time when it -- 17 its effectiveness was questioned, but I don't believe 18 anyone in the industry has questioned the 19 effectiveness of the BAC in the last 18 months. I'll 20 be happy to answer any questions. And by my watch, 21 the comments are less than two minutes. 22 CHAIRMAN CLOWE: We appreciate it. 23 Your brevity is noted. 24 Anyone else from the public? I see 25 Mr. Bresnen indicating he supports Mr. Fenoglio? 0032 1 MR. BRESNEN: He's the bill supporting 2 me. 3 CHAIRMAN CLOWE: There you go. 4 Commissioner Cox, do you have a 5 comments? 6 COMMISSIONER COX: I do. I have a 7 question. Billy, I heard in your presentation some 8 of these criteria in paragraph 2110.006 addressed. 9 Now, Billy and Kim, it indicates that we shall 10 evaluate annually the committee's work, the 11 committee's usefulness, and the costs related to the 12 committee's existence, including agency staff time. 13 That's the cost-benefit analysis that we try to do in 14 everything we do over here. What -- and then I think 15 I heard you say, Kim, that that analysis is to be 16 filed with the request for appropriation. Is that 17 correct? 18 MS. KIPLIN: Yes, that's correct. 19 COMMISSIONER COX: Okay. It seems to 20 me that if we are going to vote to continue this, 21 that is going to trigger a request for appropriation, 22 and that since this evaluation has to go with that 23 request for evaluation, that perhaps we should see 24 this evaluation before we vote to continue or not. 25 Does that make sense? 0033 1 MR. ATKINS: There is currently -- and 2 I'm going to -- I'm looking for Mr. Deviney, maybe, 3 for a little guidance. There is no appropriation 4 currently for the Bingo Advisory Committee. In the 5 past, we have received an appropriation to cover 6 travel costs. During the last session, it's my 7 understanding that the legislature eliminated all 8 travel costs for all advisory admittings. So -- 9 CHAIRMAN CLOWE: Advisory committees. 10 MR. ATKINS: Advisory committees, I'm 11 sorry. So there is currently no appropriation cost 12 in terms of those travel costs. 13 If I can kind of touch on, I think, 14 one of the items that you were referencing, 15 Commissioner Cox. Again, one of the items still 16 pending for the advisory committee to do, which I 17 believe the chair wants on the next agenda, is for 18 them to develop a report to present to you on their 19 effectiveness and their activities during the year. 20 COMMISSIONER COX: Now, Kim, let's go 21 back to what you said about this evaluation. It 22 says, we shall evaluate it, and then I understood to 23 you say, in addition to that, that that will go with 24 a request for appropriation, but then I hear that 25 we're not requesting appropriation, so what is the 0034 1 effect of this 2110.006? Do we just prepare this 2 thing and put it in the file? Do we prepare this as 3 a basis for our deliberation on whether we continue 4 this committee? Or what is this -- how does that 5 play with the proposed action here? 6 MS. KIPLIN: Mr. Atkins is reminding 7 me that there are Legislative Budget Board staff 8 present that may be more involved in this kind of 9 discussion in terms of the connection. I certainly 10 wouldn't want to skirt the question, so I'll be glad 11 to respond and -- 12 COMMISSIONER COX: I just need an 13 answer. Whoever gives it to me, it doesn't matter. 14 MS. KIPLIN: Okay. All I can tell you 15 is that there is the requirement. I don't see that 16 there is the direct connection in terms of 2110.006 17 preceding your action to vote affirmatively to 18 continue. I think, logically, there could be the 19 connection. The direct connection is the evaluation 20 and then the requirement that that be reported in 21 connection with the agency's request for 22 appropriation. 23 COMMISSIONER COX: When was -- this 24 thing seems to have been effective 1997. Have we 25 done this in previous years? 0035 1 MS. KIPLIN: I think the last time 2 that it came up was -- it must have been four years 3 ago. I'm going on recall. Because it was every four 4 years after the creation of the -- of the committee. 5 In terms of the report, I don't know that y'all have 6 evaluated it formally, like you are now, but I do 7 think that there has been some discussion in terms of 8 effectiveness and usefulness and cost. And I'll 9 defer to Mr. Atkins on that. 10 MR. ATKINS: That's correct. And 11 there also has been in the past, when there was an 12 appropriation, a schedule that the agency filed with 13 its appropriations request. That schedule covered 14 the advisory committee's travel costs and that 15 schedule came before the Commission for their 16 consideration. 17 COMMISSIONER COX: Well, I know that 18 we have discussed at length all of these three 19 criteria. And I know you've done work formalized, 20 which typically is the one that is easiest to do. 21 You can generally find the cost of those. The 22 benefits are much, much harder to quantify and 23 compare. And yet I think we should at least, on a 24 subjective basis, write down what we think those 25 benefits are and do the best cost-benefit analysis 0036 1 that we can before we make this decision. 2 Chairman, does that make sense to you? 3 CHAIRMAN CLOWE: Sure. 4 COMMISSIONER COX: So I would suggest, 5 Billy, that you and your staff, and whoever you need 6 to help you, prepare this report that is required to 7 be prepared, and then that we consider that report as 8 we consider the continuation of the Bingo Advisory 9 Committee. 10 MR. ATKINS: I think, Commissioner 11 Cox, I'm probably -- we're probably going to need a 12 lot of help from the Commission in determining how 13 beneficial they have been to you. 14 COMMISSIONER COX: Well, I think that 15 I can -- I would be glad to work with you. But I 16 don't see this as something that is necessarily going 17 to produce a number at the top and a number at the 18 bottom and a difference. I think this is going to be 19 a description of the activity, which probably would 20 be based largely on the committee's own reportings of 21 what it's accomplished, and our looking at that and 22 saying, gosh, you know, the cost is 50 or 60,000 23 dollars, and that either clearly is worth it or 24 clearly isn't or it's ambiguous. Nothing more 25 precise than that. And I don't have in mind here 0037 1 anything where we will try at all to quantify the 2 value of the work these folks do. I don't think 3 that's possible. But the legislature wants us to do 4 this, and I think we should do the best job we can on 5 it. And as I say, I will be glad to help. 6 MR. ATKINS: That's what I was fishing 7 for. 8 CHAIRMAN CLOWE: Let me take a crack 9 at it. Billy, I think this goes back to the 10 discussion that you and I had earlier on this item. 11 And I think Commissioner Cox has put you on the right 12 track. It's going to be difficult because so much of 13 it may be intangible and difficult, if not 14 impossible, to quantify in the report. But my 15 sense -- and I'm going to try to give you some help 16 now from a commissioner. My sense is that the 17 Commission wants input from industry members that is 18 beneficial, helpful, and reflective of what the 19 industry is dealing with and what is going on in the 20 industry on a current basis. My personal view is 21 that some years ago, when I first came on this board, 22 the BAC was not producing that kind of information to 23 the level that it is today. And I think it has 24 become more productive and more proactive, possibly 25 as a result of the Sunset review and the legislative 0038 1 session where they became -- members of the industry 2 became more energized and members of the BAC were 3 communicating to the industry and to the Commission. 4 That includes, certainly, the staff. I think 5 Commissioner Cox has taken a real interest in 6 attending the BAC meetings, as have I, and I think 7 that's had a beneficial result. My recollection is, 8 prior to those occurrences, it was unusual for a 9 commissioner to attend the BAC meetings. My sense is 10 the Sunset review directed the Commission to examine 11 the BAC and see what value it might have. And that's 12 what we're about right now. 13 It's been difficult for those members, 14 cost-wise, when their traveling expense was removed 15 from the equation, but I think they have continued to 16 meet, although not on perhaps as regular a basis. I 17 for one feel the BAC has improved, but I want it to 18 improve more in terms of communication. And I think 19 the mind set that I would like to speak about is one 20 that I've spoken to the BAC members directly about, 21 and that is, to represent the industry in their 22 deliberations and their activities and their reports 23 to the Commission more than their individual business 24 positions. And that's often difficult. I have 25 experienced that personally. You get focused on what 0039 1 is your own individual need and you're an industry 2 spokesman and you tend to gravitate to that viewpoint 3 and it's more difficult to be objective. But that's 4 the role, as I see it, of a BAC member. I'm not 5 singling out any issue or any particular individual, 6 but that's a view that I hope the members of the BAC 7 will remember, their position is to advise the 8 Commission. And that is a challenge. And these are 9 business people that now are paying their own 10 expenses, and it's a challenge to anyone to step up 11 from the public and give that kind of public service. 12 I think, again, your work program that you instituted 13 was very helpful, the creation of those subcommittees 14 to work on rules. That's the kind of thing that by 15 dealing with those issues before they come to the 16 Commission, in your work groups, getting public 17 input, industry input, modifying and changing staff 18 recommendations, and coming up with a work product 19 that is universally acceptable, is an excellent 20 result of the kind of work that I see the BAC doing 21 and it being meaningful and having great value. 22 The bottom line on this is that my 23 sense today is the BAC is serving a purpose, but I 24 would like to see it step up to a higher level and 25 perform a greater service in its advisory role to the 0040 1 Commission. That's not easy. An illustration of the 2 degree of difficulty is, you have had a vacancy on 3 the BAC for some time now and you've had no 4 nominations from the industry to fill that position. 5 Am I correct in that? 6 MR. ATKINS: No, sir. We've had very 7 few nominations. 8 CHAIRMAN CLOWE: You've had very few. 9 The last time we talked, I didn't think you had any. 10 MR. ATKINS: I think we've received 11 maybe three, only one of who whom is actually 12 eligible. 13 CHAIRMAN CLOWE: Well, that doesn't 14 make the point, then, as clearly as I thought it did. 15 But it still is a point that, from an industry of 16 hundreds of entities and many, many people, you know, 17 there is something about that. There is a message in 18 there that there is not a level of interest or 19 commitment, or something, that concerns me about the 20 level of commitment and the level of activity on 21 behalf of the BAC. 22 Now, I want to give Mr. Fenoglio and 23 anyone else another cut at it, if you would like to 24 make a comment based on my comments. If you agree or 25 disagree or you have comments that will help us in 0041 1 this discussion get focused. Would anyone like to 2 say a word? I've struck them down. I'm just -- 3 MR. BRESNEN: As soon as we can. I 4 thought I would set a record. 5 CHAIRMAN CLOWE: Okay, Number 19. 6 I've got you. 7 Okay. That's the best job I can do to 8 help you in your evaluation. And I wanted that in 9 the public on the record so that, you know, if 10 anybody wanted to disagree, they could. 11 MR. ATKINS: Well, then, I guess I'm 12 sure, Commissioner Clowe, that you would also be 13 available for consultation, of course, separate from 14 Commissioner Cox, but as we go through this process, 15 to work out items with you, also. 16 CHAIRMAN CLOWE: Okay. You bet. As 17 always. 18 COMMISSIONER COX: One more. Billy, I 19 see this -- and I share Chairman Clowe's view that 20 this analysis is going to tell us that the -- that 21 the benefit of this committee outweighs its cost. 22 That's my perception. I would be surprised if it 23 comes out any other way. But I see this not only as 24 an exercise in complying with this requirement, but 25 also, an exercise in setting a baseline against which 0042 1 we will measure the effectiveness in the future. I 2 think that if we can make a determination initially 3 that it is or is not justified, then as we report in 4 future years along the lines of these things, it will 5 be more obvious to us whether it has become more 6 valuable or less valuable. 7 MR. ATKINS: For clarification, 8 Commissioners, are you wanting this information 9 before you vote to extend the advisory committee? 10 Because one thing -- I'm thinking one available 11 resource would be the advisory committee themselves. 12 COMMISSIONER COX: Well, I think the 13 reports that you have of the advisory committee will 14 be helpful, and certainly discussions that you may 15 have with members of the committee, and the 16 representatives of the industry certainly are 17 appropriate for preparing this. Let me tell you that 18 I am thinking a page and a half, not 300 pages. 19 MR. ATKINS: So you do want this 20 before you vote on the -- got it. 21 COMMISSIONER COX: I would like to 22 have it before we vote. 23 CHAIRMAN CLOWE: And, Billy, I'm 24 looking for the next BAC meeting date. It is -- 25 MR. ATKINS: The 26th. 0043 1 CHAIRMAN CLOWE: The 26th of February? 2 MR. ATKINS: Yes, sir. 3 CHAIRMAN CLOWE: And this Commission 4 will meet in February, and to beat the March 6th 5 deadline, we've got to deal with it at that meeting, 6 the February meeting. 7 I would like to note that Commissioner 8 Olvera is here. I think he arrived at 9:26 a.m., and 9 we have a full Commission now. And, Commissioner, we 10 are on item number nine, consideration of and 11 possible discussion and/or action relating to the 12 continuation of the Bingo Advisory Committee. 13 COMMISSIONER OLVERA: Thank you, 14 Mr. Chairman. 15 CHAIRMAN CLOWE: Was I correct in 16 trying to get that time frame that you had in your 17 mind -- 18 MR. ATKINS: Yes, sir. 19 MR. FENOGLIO: Mr. Chairman? 20 CHAIRMAN CLOWE: Oh. Pardon me. 21 MR. FENOGLIO: If I may. In -- 22 CHAIRMAN CLOWE: You changed your 23 mind. 24 MR. FENOGLIO: I did. Well, in 25 responding to your comment and Billy's concern about 0044 1 BAC input, you do have the ability to appoint a 2 subcommittee of the BAC to address this issue, and I 3 would be happy to help work with that. I can tell 4 you, from talking with BAC members, that they do have 5 strong feelings on this issue. I don't know if the 6 chairman was even aware of the meeting, by the way, 7 where -- of the BAC where she could have attended. 8 But there is an ability to reach out to the BAC for 9 some input. The staff has done an excellent job in 10 all of these rules of having telephone conference 11 meetings, if you will, with the committee. I've 12 participated, either here at the Commission office or 13 in my office on those, and there is a way to get that 14 even with a tight time frame. And I'll be happy to 15 work in any way that I can on behalf of the clients I 16 represent. Thank you. 17 CHAIRMAN CLOWE: If you'll take that 18 on yourself, then, to inform the Chair, and I'm sure, 19 Billy, you'll do the same. 20 MR. ATKINS: The Chair was informed of 21 this meeting and that this item would be on it. 22 CHAIRMAN CLOWE: That's the kind of 23 input I think we want. We want to hear from them. 24 MR. FENOGLIO: Well, and I'll work 25 with Billy and the staff to make sure that they get 0045 1 input from the BAC, to the extent allowed by the Open 2 Meetings Act. 3 CHAIRMAN CLOWE: And Steve, it's -- in 4 my mind, it's important that the Commission hear, 5 through the members of the BAC, from the broadest 6 sector of the industry as possible. And I know you 7 represent a large number, but you don't represent all 8 of them. And that is the outreach of the BAC and 9 that can be helpful to the Commission and help that 10 regulatory relationship be the best it possibly can. 11 MR. FENOGLIO: Understood and agreed. 12 CHAIRMAN CLOWE: I'm hearing, then, 13 Billy, the sense that the Commission is trying to 14 give you input on their individual thoughts and does 15 not want to deal with this other than asking for a 16 report in the February meeting, and it is timely for 17 us to do that and put it on the agenda at that 18 meeting for consideration and possible vote. 19 MS. KIPLIN: Yes. 20 CHAIRMAN CLOWE: Commissioners, is 21 that acceptable? 22 MS. KIPLIN: And with your indulgence, 23 just try to anticipate -- I may get it wrong, but I 24 probably would like to notice it up broad enough to 25 also include a proposed amendment to the Bingo 0046 1 Advisory Committee rule. 2 CHAIRMAN CLOWE: I think that's the 3 thought. Correct? Okay. Anything further on this 4 item? 5 Then we'll move to item number ten, 6 report, possible discussion and/or action on lottery 7 sales and trends. Good morning. 8 MR. DEVINEY: Good morning, 9 Commissioners. I'm Lee Deviney, financial 10 administration director. Tab ten of your notebook is 11 titled, lottery sales and trends. Toni Erickson is 12 passing out three memos, dated January 30th, 2004, 13 regarding lottery sales activity. The first memo 14 indicates that unaudited fiscal year 2004 sales 15 through the week ending January 24th amounted to 16 1.252 billion. This represents a 1.1 percent 17 increase over FY 2003 sales of 1.238 billion for the 18 comparable time period. 19 The second memo describes FY 2004 20 sales by product during the 146-day compared to FY 21 2003 sales for 147 days. 22 The third memo compares sales for the 23 last two full weeks, ending January 17th and January 24 24th, 2004. Total lottery sales increased by 4.3 25 percent, led by strong Lotto Texas sales and Mega 0047 1 Millions as their jackpots grew to the 60 and 50 2 million dollar range. 3 Under tab 15, marketing staff will 4 provide you with more detailed analysis of on-line 5 game sales and trends. Any questions? 6 MR. GRIEF: Commissioners, if I could, 7 I would just like to point out what appears to be a 8 typo on the memo. Under the executive summary, it 9 states, both in your notebook and in the one handout, 10 it says, 1.252.4 million. That should be billion 11 dollars, for the record. 12 CHAIRMAN CLOWE: Any questions? 13 Mr. Greer, do you have anything to 14 add? 15 MR. GREER: No, sir. I'm going to 16 have some comments, but I'm going to save them for a 17 future item that will involve Robert Tirloni and 18 Liz Jambor. 19 CHAIRMAN CLOWE: Would that cover the 20 impact of the Mega Millions game and its relationship 21 to the Lotto Texas game? 22 MR. GREER: Yes, sir. 23 CHAIRMAN CLOWE: Okay. I would like 24 to hear about that. And if your comments are coming 25 later, I will wait for that. 0048 1 MR. GREER: Yes, sir. We have a full 2 presentation that will be very informative for you. 3 CHAIRMAN CLOWE: Okay. Commissioners, 4 anything else on that item? Thank you, Mr. Deviney. 5 The next item is number 11, which I 6 believe is also yours. Report, possible discussion 7 and/or action on HUB and minority business 8 participation, including approval of the minority 9 business participation report. 10 MR. DEVINEY: Commissioners, I'm Lee 11 Deviney again. Joyce Bertolacini, the Commission's 12 Historically Underutilized Business coordinator, will 13 provide a brief overview of the Lottery's HUB and 14 minority business participation, monthly activity 15 reports, under tab 11 in your notebook. Under tab 16 11, Joyce will also present the Lottery's fiscal year 17 2003 minority business participation report for your 18 consideration and approval. Professional. 19 MS. BERTOLACINI: Good morning, 20 Commissioners. For the record, my name is Joyce 21 Bertolacini and I am the agency's historically 22 underutilized business coordinator, and I'm here to 23 report on items related to our HUB and/or minority 24 business participation. 25 Included in your notebook is the TLC's 0049 1 monthly HUB minority contracting activity report, 2 which includes all fiscal year 2004 expenditures paid 3 from September 1st, 2003 through December 31st of 4 2003. At this time, our total qualifying 5 expenditures for the period were 45.5 million, and 6 our estimated HUB utilization was 16.9 million, which 7 equates to a percentage of 37.2. 8 Also in your notebook is the copy of 9 the agency's annual minority business participation 10 report for fiscal year 2003, which you've had, 11 hopefully, some time to review. This report does 12 require your formal approval for publication in print 13 and on or website. 14 Finally, please note that we have no 15 updates to report on the Mentor Protege program at 16 this time. Commissioners, I would be happy to answer 17 any questions that you have regarding any of the 18 reports. 19 CHAIRMAN CLOWE: Commissioners, I 20 believe the submission of this report requires a vote 21 and approval by the Commission. 22 MS. KIPLIN: Yes, sir, that is 23 correct. Section 467.107 -- pardon me. Section 24 466.107 of the Government Code, which is the State 25 Lottery Act, Subsection C, does require the 0050 1 Commission to report annually to the legislature and 2 the Governor on the level of minority business 3 participation as it pertains both to your contracts 4 and the licensing of sales agents. It's also to 5 include recommendations for the improvement of 6 minority business opportunities in lottery-related 7 business; therefore, it is an action item for the 8 Commission and your action would be to vote to 9 approve the report and then have it committed to the 10 required entities. 11 CHAIRMAN CLOWE: Are there any 12 questions, Commissioners, or comments? 13 MR. GREER: Commissioner, I would like 14 point you to page 12 in that report. And I wanted to 15 thank Joyce publicly for her work on putting this 16 together as well as Lee and the rest of the division. 17 They did a great job. I enjoyed working with them on 18 this. But specifically, on page 12, you'll note, the 19 Texas Lottery Commission as the number one State 20 agency in reference to participation and 21 expenditures. 22 CHAIRMAN CLOWE: We moved up from 23 three to one, didn't we? 24 MR. GREER: Yes, sir. Very 25 impressive. 0051 1 CHAIRMAN CLOWE: That's great. I 2 think that represents a unified effort on the part of 3 employees of the Commission, and I for one am very 4 pleased to see that. I thought maybe you were going 5 to draw our attention to page one. 6 MR. GREER: That's -- 7 CHAIRMAN CLOWE: It sort of jumps out 8 at us. 9 MR. GREER: That was a graphics thing. 10 CHAIRMAN CLOWE: Commissioners, any 11 comments or questions? Is there a motion? 12 Move the adoption of the report. Is 13 there a second? 14 COMMISSIONER COX: Second. 15 CHAIRMAN CLOWE: All in favor say aye. 16 Opposed, no. The vote is three-zero in favor. 17 I believe you need this letter signed, 18 which I have done now. 19 MS. BERTOLACINI: Thank you. May I 20 approach? 21 CHAIRMAN CLOWE: Anything further on 22 this subject? 23 MS. BERTOLACINI: No, sir. 24 MS. KIPLIN: Commissioner, I would 25 say, you -- Mr. Chairman, you sign that in your 0052 1 representative capacity on behalf of the three-member 2 Commission. 3 CHAIRMAN CLOWE: Thank you. Next, 4 item 12 report, possible discussion and/or action on 5 the agency's contracts. Again, Mr. Deviney. 6 MR. DEVINEY: Commissioners, please 7 refer to tab 12, which includes the weekly status of 8 audited commission contracts having an estimated 9 value of 25,000 dollars or more. Either myself or 10 Lisa Martinez, our contracts compliance coordinator, 11 or a division representative may answer any 12 questions. 13 CHAIRMAN CLOWE: Any questions? 14 No action required on this item, I 15 believe? 16 MS. KIPLIN: That's correct. 17 CHAIRMAN CLOWE: Then, Mr. Deviney, 18 we'll going to item 13, report, possible discussion 19 and/or action on the agency's financial status. 20 MR. DEVINEY: Commissioners, tab 13 21 includes four reports on the Lottery Commission's 22 financial status. The first page is a summary of 23 expenditures, commitments, and remaining budget for 24 the Lottery and the Charitable Bingo Division. 25 Through the first four months of the fiscal year, as 0053 1 the agency's expenditures are within budget targets 2 and there are no significant budget variances to 3 report at this time. 4 Next, we have provided you with object 5 of expense budget report for the Lottery and Bingo 6 Divisions through December 31st, 2003, that being the 7 first four months of the fiscal year. This month, we 8 did not include a teal divider page, but you will 9 find a report on transfers made to the Foundation 10 School Fund and allocations of unclaimed prize money. 11 The January 2004 transfer to the Foundation School 12 Fund amounted to 86.4 million dollars. 13 Finally, you will find a report of 14 audited revenues, expenditures and transfers for each 15 fiscal year from fiscal year 1992 through fiscal year 16 2004 to date. On the last page of this report, you 17 will note that total transfers to the State surpassed 18 the 11 billion dollar mark in December. I'll be 19 pleased to answer any questions that you may have. 20 CHAIRMAN CLOWE: Are there any 21 questions? 22 The next item, Mr. Deviney, is yours 23 as well. Number 14, report, possible discussion 24 and/or action on the agency's report of nonfinancial 25 data. 0054 1 MR. DEVINEY: Commissioners, this item 2 actually doesn't require any action on your part. 3 What we have -- what we provided you with is the 4 agency's annual report of nonfinancial data. This 5 report is required to be submitted to the Governor's 6 Office and certain other State agencies pursuant to 7 the Texas Government Code. The report was submitted 8 timely, on December 31st, 2003. Either I or Ben 9 Navarro can answer any questions that you may have on 10 this report. 11 CHAIRMAN CLOWE: Are there any 12 questions? Thank you, Mr. Deviney. 13 The next item, 15, report, possible 14 discussion and/or action on the Commission's on-line 15 lottery games. 16 MR. TIRLONI: Good morning, 17 Commissioners. For the record, my name is 18 Robert Tirloni. I am the on-line product manager for 19 the Texas Lottery Commission. 20 MS. JAMBOR: Good morning, 21 Commissioners. For the record, I'm Liz Jambor. I'm 22 the marketing research manager of the Texas Lottery 23 Commission. 24 MR. TIRLONI: Commissioners, Liz and I 25 are back this month so that we can continue to 0055 1 provide you with an update on the Mega Millions game, 2 the Megaplier game, and how those games are impacting 3 the on-line product mix overall. Of course, as we 4 sit here this morning, we have a 73 million dollar 5 Mega Millions jackpot up for grabs tonight, and 6 tomorrow night we have a 70 million dollar Lotto 7 Texas jackpot up for grabs. So needless to say, 8 we're very pleased about the current jackpot 9 offerings to the players in Texas. We've been 10 receiving a lot of very positive publicity over the 11 past week and a half, and the majority of it has 12 surrounded the Lotto Texas game and the Lotto Texas 13 jackpots that have been available. Of course, we're 14 very pleased with that. 15 Just to give you a quick chronology of 16 where we are in Mega Millions, we started our sales 17 on Wednesday, December 3rd, and at our last meeting 18 last month, we were in the middle of a roll cycle. 19 When we began our -- when we began with Mega 20 Millions, the current jackpot was 44 million dollars. 21 That roll cycle continued to roll and continued to 22 build up until December 30th. That jackpot, or the 23 advertised jackpot for that drawing was 155 million 24 dollars. The jackpot winning ticket was sold in 25 Ohio, and actually, sales supported a 162 million 0056 1 dollar jackpot, and that's what the winner was paid. 2 So after that winning ticket was sold, that Friday, 3 January 2nd, we started a brand new roll cycle and 4 Mega Millions jackpots start at ten million dollars, 5 and we have continued to roll up until the present 6 time. And as I just stated, tonight's jackpot is 7 advertised at 73 million dollars. 8 MR. GREER: Commissioners, I would say 9 at this point, briefly, that you do have this color 10 presentation in your packet there if you want to 11 refer to it. It's in the front of your -- it's a 12 handout. 13 MR. TIRLONI: As we know from our 14 experience with Lotto Texas, Commissioners, we 15 realize the bulk of our draw sales on the actual day 16 of the drawing. With the Lotto Texas, we usually 17 realize upwards of 66, 67 percent on the total sales 18 for the draw on the actual draw day, and these next 19 two slides are important because they illustrate how 20 drawing these sales on Mega Millions have increased 21 as the jackpot increases. And I think it also shows 22 that players are becoming accustomed to the Tuesday, 23 Friday draw schedule, which is something new in Texas 24 to have a multi-million dollar jackpot game drawn on 25 Tuesdays and Fridays. And as you can see, with this 0057 1 December 26th drawing, that was an advertised 125 2 million dollar drawing, so you can see we nicely 3 built up for that drawing. And then after we had a 4 winning ticket sold on December 30th, here is the 5 start of the ten million dollar roll cycle, the start 6 of the roll cycle that we're currently in, starting 7 at ten million dollars. And this is pretty typical 8 to see this kind of buildup as the jackpot increases. 9 Again, this is for Friday. And Tuesday is no 10 different. This was the advertised 155 million 11 dollar jackpot. We hit over 3.4 in Mega Millions 12 sales alone. This is not including Megaplier sales. 13 And then, again, after the jackpot was hit, you start 14 to see the sales that, of course, they're less, 15 because we're starting at a much lower jackpot, but 16 then again, you start to see the buildup as the 17 jackpot climbs. 18 This next slide charts Texas Mega 19 Millions and Megaplier sales. The blue line is Mega 20 Millions sales, the purple colored line is Megaplier 21 sales. You'll notice a large jump here. That was an 22 85 million dollar jackpot, that was a 100 million 23 jackpot, and we attribute that large jump to the fact 24 that this was the first time that a triple-digit 25 jackpot was ever available to the players in Texas. 0058 1 This is the 155 million dollar jackpot. And then 2 again you see us start back over at ten million 3 dollars. And you see Megaplier followed the same 4 trend, slowly building, up to the point where we were 5 at a 155 million dollar jackpot for Mega Millions, 6 and then, again, after the -- that jackpot was won, 7 we see Megaplier sales decrease a bit, and then 8 continue on as the jackpot rolls. It is worth noting 9 that during this time period when -- after the Mega 10 Millions jackpot was hit, the Lotto Texas jackpot was 11 above 30 million dollars at this point in time right 12 over here, and Lotto has continued to build, which 13 you'll see in a future slide. 14 This slide shows us Mega Millions and 15 Megaplier sales. The good news is, Megaplier sales 16 are 22 percent of the total Mega Millions sales, so 17 our original projections for that Megaplier should be 18 approximately 20 percent. So we're very pleased with 19 the performance of the Megaplier game. We attribute 20 that to a few different things or for a few different 21 reasons. When our sales force was launching the Mega 22 Millions game in Texas, we had a very strong emphasis 23 on not only Mega Millions, but the Texas-only 24 Megaplier feature. So as our sales staff went around 25 and talked to retailers about that, they were selling 0059 1 that feature in and pointing out the benefits to 2 players of the feature. I want to let you know that 3 our emphasis on Mega Millions continues and on 4 Megaplier. For the month of February, we will have 5 Mega Millions TV and radio ads running. We will also 6 be running statewide radio promotions. And, once 7 again, in February, the sales staff will be 8 reinforming, so to speak, our retailers about the 9 Mega Millions and the Megaplier feature of the game. 10 Last month when we met, I showed you 11 this slide and this was the only -- this was current 12 at that time. We had 175,000 winning tickets sold in 13 Fort Worth and in Brownsville, and then on Tuesday, 14 December 16th, we had 275,000 dollar winning tickets 15 sold, one in Weslaco and one in Duncanville. The 16 interesting thing is, Liz and I were at a retailer 17 meeting in McAllen about a week or so ago. And we 18 were meeting with high volume retailers at that 19 meeting. And as the meeting started going on, we 20 began to realize that one of those retailers was also 21 the Weslaco 175,000 dollar winner. So we got to meet 22 that winner firsthand. She and her husband were 23 there. They were very happy about the 175,000 dollar 24 win. Her last words to us as she left were, if I had 25 only Megaplied. The Megaplier number for that 0060 1 drawing was a four, and if she had Megaplied, her 2 prize would have been 700,000 dollars. And we talked 3 to her about possibly appearing in a Mega Millions 4 winner TV spot. 5 The good news is, we have had 175,000 6 dollar winners who have Megaplied. We had a winner 7 in Terrell who won 700,000 dollars. We had a two 8 winners on December 26th, in El Paso and McAllen. 9 The McAllen ticket was Megaplied. That ticket was 10 worth 350,000. The winning continues. On the 30th, 11 that was the 155 million dollar drawing. We had 12 three winners in Texas, two in Houston, one Edinburg, 13 and another one in McAllen. The Edinburg prize was 14 Megaplied and it's worth 700,000 dollars. And then 15 on Tuesday, the 20th we had a ticket sold in Houston, 16 and on Friday, January 23rd, just a week ago, we had 17 two more winners at that level, one in Mauriceville 18 and one in Dallas. 19 MR. GREER: On the 30th, we had four 20 175 winners? 21 MR. TIRLONI: I apologize. Yes. Two 22 in Houston, one in Edinburg, and one in McAllen. 23 CHAIRMAN CLOWE: And it's 24 Mauriceville. 25 MR. TIRLONI: Mauriceville. Sorry 0061 1 about that. 2 So after 17 draws, we have had 14 3 175,000 winners in the game. 4 This chart shows the Lotto Texas 5 jackpot versus the Mega Millions jackpot amounts. 6 And I have charted this to show the Lotto Texas draw 7 dates, and then the advertised jackpot on this axis. 8 So you can see, the current Lotto Texas jackpot is 9 70. We began this roll cycle back on November 12th 10 at four million, and so we have the 70 million dollar 11 jackpot tomorrow night, that's the 24th drawing in 12 the roll cycle, so we've rolls 23 times to get to 13 where we are now. And you see, this is where we 14 started with Mega Millions, on December 3rd, at the 15 44 million dollar jackpot. You see we climbed up to 16 the 155. The winning ticket was sold, as I stated 17 earlier. We started back at ten, and here you can 18 see the power of 11 states pooling their sales 19 because just after about 16 or 17 rolls, Mega 20 Millions -- the Mega Millions jackpot has surpassed 21 the Lotto jackpot. 22 CHAIRMAN CLOWE: Robert, what are the 23 coverages the last few draws of Lotto Texas? Do you 24 have those numbers? 25 MR. TIRLONI: I know the last draw was 0062 1 13 percent coverage on the last draw. 2 CHAIRMAN CLOWE: As we build on this 3 track record you're showing us on Lotto Texas, does 4 that coverage stay in that range? 5 MR. TIRLONI: It usually depends on 6 how high the sales are. Usually, as your sales 7 increase, your coverage increases because you're 8 covering more of the available combinations. 9 CHAIRMAN CLOWE: That's in general? 10 MR. TIRLONI: That's in general, yes. 11 CHAIRMAN CLOWE: Is this following -- 12 this trend that you're showing us here, following 13 that general trend? 14 MR. TIRLONI: Yes, that seems to be 15 the case. 16 One point worth noting, Commissioners. 17 The 70 million dollar jackpot that we currently have, 18 we were looking back at some old Lotto Texas history, 19 some old Lotto Texas information, and we looked at 20 what the interest rate factor was about two years 21 ago, and it was -- it was considerably higher than 22 where we're at now. And if we had the same interest 23 rate today that we had two years ago, we would 24 probably be advertising a 75 million dollar jackpot 25 at this point in time right now. So that's also 0063 1 important for us to remember, that the interest rates 2 do play a role in the jackpot amount that we 3 advertise. 4 We talk a lot about the Mega Millions 5 sales, the Megaplier sales, Lotto Texas sales. This, 6 I think, is a very good slide because I think this 7 gives us a perspective of how Texas ranks compared to 8 all of the other Mega Millions participating states. 9 So you see up at the top is New York, and I started 10 this chart from the ten million dollar drawing, which 11 began on January 2nd, and I brought it forward 12 through the 60 million dollar drawing that we just 13 had this past Tuesday. You can see, New York is 14 pretty much the top seller in Mega Millions, but 15 Texas is number two, all the way along, and then 16 right over here, you start to see we -- there is kind 17 of three groups. There is kind of, New York is off 18 unto itself, and then Texas tends to cluster with 19 Michigan, New Jersey, Ohio, Illinois and Georgia, 20 kind of in this group, and then you pretty much have 21 Virginia, the state of Washington, Maryland and 22 Massachusetts clustered down in this group. But we 23 were pretty much second in sales for all of the 24 drawings. And then you start to see, we had some 25 other states kind of catch up to us, and right around 0064 1 over here, it looks like New Jersey just started 2 selling a little more than we did on the Tuesday 3 drawing. But I think this is a good chart because it 4 gives us a perspective of where we are in the rest of 5 the group. 6 CHAIRMAN CLOWE: That might change if 7 Lotto Texas wasn't at its jackpot levels. 8 MR. TIRLONI: Absolutely. That's 9 correct. 10 CHAIRMAN CLOWE: I think you've got an 11 interesting relationship going on right now, and I'm 12 still waiting for that to change to see this kind of 13 chart. 14 MR. TIRLONI: We are, too. We're 15 waiting to see exactly what happens, you know, if 16 Lotto Texas -- when Lotto Texas and there is a 17 winning ticket sold for that game and it's back at 18 four million, it will be very interesting to see, if 19 Mega Millions continues to hold, what the 20 relationship will be between the two games in terms 21 of sales. There does seem to be a lot of loyalty to 22 the Lotto Texas game through this roll cycle. 23 MS. JAMBOR: As we had talked about in 24 our last Commission meeting, we were going to 25 continue to monitor the impact of Mega Millions on 0065 1 the current game mix. As you can see here, we have 2 Texas Two Step weekly sales. These are based on pre 3 and post Mega Millions start, average weekly sales 4 for similar jackpots. So as you can see, post Mega 5 Millions, Two Step for average weekly sales is 6 experiencing a 40 percent average sales shift. This 7 was confirmed anecdotally at the same retailer 8 meeting that Robert mentioned earlier. When 9 discussing Two Step with the retailers, they came 10 right out and said, we push Mega Millions. It's a 11 bigger jackpot. And so we're getting a clear 12 understanding that there is an unfair competition 13 between Mega Millions and Two Step, and players are 14 having to make a decision, and right now they're 15 making the decision to play Mega Millions. 16 Due to the current roll cycle of Lotto 17 Texas, which is currently at 70 million dollars, we 18 couldn't make any comparisons by jackpot by week like 19 I just showed you with Texas Two Step because we 20 don't have any jackpots as high as we're experiencing 21 now under the current matrix. So the next slide I'm 22 going to show you is sales comparison based on the 23 first 21 weeks of FY '03 and FY '04, to indicate any 24 possible sales shifts in Lotto Texas. And as you can 25 see, the small yellow rectangles are average weekly 0066 1 sales, and then the larger maroon bars are total 2 sales for Lotto Texas, FY '03 on the left-hand side, 3 and FY '04. And what we're seeing, on average, is a 4 22 percent sales shift in Lotto Texas sales, which is 5 quite near what we had estimated sales shift to be 6 once we introduced Mega Millions. 7 The important point to make, however, 8 is that with an increase in game variety comes an 9 increase in sales. As we have added any additional 10 on-line games, when we introduced Texas Million or 11 Texas Two Step, when we've introduced draws, when 12 we've introduced draw days, we've always seen an 13 increase in sales. So what that means is that more 14 dollars are being generated by the Texas lottery with 15 the inclusion of Mega Millions, and more lottery 16 dollars generated means that we are returning more 17 money to the State. What is really exciting in all 18 of this is the increase that we're seeing in on-line 19 sales. And if you look at average weekly on-line 20 sales, that's all on-line games, and total on-line 21 sales, we're seeing a 24 percent increase in on-line 22 sales, which is a very exciting increase for us. 23 What this is translating to is over 54 24 million dollars in additional on-line sales since the 25 inclusion of Mega Millions. 0067 1 This last graph I want to show you 2 compares sales at jackpots for Lotto Texas and 3 Mega Millions in the first eight weeks of 4 Mega Millions sales. And as we have discussed 5 earlier, these will probably change as the jackpots 6 change, but two interesting points to make. One is, 7 when we started Mega Millions, we had a 44 million 8 dollar jackpot and sales at this level. Here is a 42 9 million dollar jackpot and we're seeing higher sales 10 for a similar level jackpot. What that indicates is 11 that people are becoming more aware of Mega Millions 12 and better educated about Mega Millions. The other 13 interesting point to make is the strength of the 14 in-state game, the loyalty players have to the 15 in-state game. Because if you look at this week of 16 the 43, 45 million dollar jackpot had much higher 17 sales than the Mega Millions 42, 51 million dollar 18 jackpot. So we still have a strong core player base 19 of Lotto Texas players. They still enjoy the 20 in-state game. They're still playing the in-state 21 game. 22 MR. TIRLONI: In summary, 23 Commissioners, we feel that the Texas Two Step draw 24 day should be changed so that the game is no longer 25 in direct competition with the multi-million dollar 0068 1 jackpot game. 2 MS. JAMBOR: And we will also continue 3 monitoring sales shifts between Lotto Texas and Mega 4 Millions as those jackpot levels continue to vary. 5 MR. TIRLONI: We would be glad to 6 answer any questions that you have. 7 CHAIRMAN CLOWE: Any questions, 8 comments? 9 MR. GREER: I would like to make a few 10 comments. I mean, great presentation. A lot of good 11 information there. I think that there is a lot of 12 misinformation that is traveling about the state 13 right now, and I think this sets the record straight. 14 That the key aspect of getting into Mega Millions 15 that we were truly looking at was the opportunity to 16 increase revenue to the State. And the fact that we 17 have a 24 percent increase in our on-line games is 18 very positive. I want to reinforce from my 19 perspective how much I have enjoyed having the 20 opportunity to interact with the other states, build 21 relationships there, and learn the process a little 22 bit about how some of those states do business. And 23 specifically, as a Texan, I'm pleased that players 24 have continued to step up and be involved in the 25 Lotto Texas process, but it's too early to tell. And 0069 1 it's like you said, Mr. Chairman, a minute ago, that 2 we've got an interesting scenario here with two large 3 jackpot amounts. So we're going to have to continue 4 to monitor this scenario. I feel like, you know, 5 time is going to lay the groundwork for us to see, 6 you know, where we need to go, but at this point, 7 certainly Lotto Texas is strong, Texas Two Step needs 8 help, and it just reinforces what we talked about 9 last month with the idea of moving Texas Two Step to 10 Mondays and Thursdays. 11 CHAIRMAN CLOWE: Commissioners? 12 Thank you all very much. 13 MR. TIRLONI: Thank you. 14 CHAIRMAN CLOWE: Next is item 16, 15 report, possible discussion and/or action on lottery 16 advertising and promotions. 17 MS. ERICKSON: Good morning, 18 Commissioners. For the record, Toni Erickson, acting 19 marketing director. At this point in time, we have 20 nothing we need to report. If you have any 21 questions, I would be happy to take them. 22 CHAIRMAN CLOWE: Any questions? Thank 23 you. 24 Then the same report on the agency's 25 marketing research. 0070 1 MS. JAMBOR: Again, for the record, 2 I'm Liz Jambor, marketing research manager for the 3 Texas Lottery Commission. 4 Commissioners, probably early in -- 5 earlier in this month, you received a full report 6 version of this presentation that I'm about to give. 7 What we are going to do this morning is hit on the 8 highlights of this study. Every year, we conduct an 9 annual market segmentation study throughout the state 10 of Texas. This study allows us to look at who 11 lottery players are and what they want as far as 12 games, as well as monitoring their motivation and 13 needs. We take the information from those player 14 segments and use it as input into the design and 15 analysis of future research as well as support for 16 market planning. 17 Our player segments are grouped into 18 six categories. And I guess I have to say, beyond 19 player segments, the population of Texas, adult 20 Texans, is separated into six segments. Our three 21 main player groups are enthusiastic supporters, 22 comfortable individualists, and paternalistic 23 players. Enthusiastic supporters have the second 24 highest participation, yet have the highest spending 25 on lottery games. This is a group that really enjoys 0071 1 gaming. They like the excitement and the fun of 2 playing Lottery games and are very much in support of 3 just about everything we do. 4 Comfortable individualists, they are 5 third in spending and participation. They enjoy 6 other types of gaming and, again, are very much in 7 favor of the Lottery. 8 Paternalistic players have the highest 9 participation and the second level of spending 10 overall. They feel very positively about the 11 lottery, but as their name indicates, they have a 12 concern about other people's participation. And 13 typically, in focus groups, you'll hear them say, I 14 understand how to play this game, but other people 15 might not. They're very concerned about other 16 people. 17 Our -- our other three groups that we 18 categorize as less playing or nonplaying are 19 disinterested dabblers, critical bystanders, and 20 prohibitionists. Disinterested dabblers actually 21 have very high participation, but they spend very 22 little. They'll try it here and there. They're also 23 known as jackpot chasers. They're probably the group 24 that is playing now. The jackpot has finally hit a 25 level that they like. 0072 1 Critical bystanders and 2 prohibitionists are the two groups that are against 3 the Lottery. However, what is interesting for these 4 two groups is, they each have a jackpot level at 5 which they will play. They may be against the 6 Lottery, but they have some level of participation. 7 All right. When players were asked, 8 how would you describe your overall opinion of the 9 Texas Lottery Commission? We can see that over -- 10 that the levels have been -- they dropped here in 11 2000. A lot of this was related to things that were 12 going on within the Lottery, prize payout. And it 13 has slowly been increasing. The thing that we 14 finally realized is that it's not related to the 15 games that they're playing. There is a disconnect 16 among players of who the Commission is and what they 17 do. They understand the Lottery, they understand the 18 games, they like the games, they support the games. 19 But when you say Texas Lottery Commission, they're 20 not really sure who that group is. And so to have a 21 positive opinion, they lack that ability to have a 22 positive opinion simply from a lack of knowledge. 23 CHAIRMAN CLOWE: You mean they're not 24 mad at Commissioner Cox individually? 25 MS. JAMBOR: No. 0073 1 CHAIRMAN CLOWE: That's good to hear. 2 MS. JAMBOR: Yeah. All right. When 3 asked about response to the -- do you think the Texas 4 Lottery is operated fairly and honestly. What we see 5 is, overall in our player groups, these three here, 6 we have a strong opinion that the Texas lottery is 7 operated fairly and honestly. And then with our less 8 playing, nonplaying groups, we see lower levels of 9 that. But, again, even with these groups that are 10 reporting to be against the Lottery, they still 11 have -- there are still positive responses that the 12 Texas Lottery is operated fairly and honestly. So, 13 in general, the Lottery is viewed positively, and is 14 seen as trustworthy, making a positive contribution 15 to the state, and being run fairly and honestly. 16 Now, when we asked the public, where 17 do the revenues from the Texas Lottery go, we're 18 seeing a trend in lack of knowledge of where the 19 money actually goes. In 1996, we had one of the 20 highest ever, still not 50 percent knowledge -- oh, 21 I'm sorry. '97. Not yet 50 percent knowledge of 22 knowing where the money goes, but this number has 23 slowly declined. Now, what makes this an important 24 issue is that for those players that are spending 25 less, when we asked them, are you spending more or 0074 1 less or the same, 57 percent report that they agree 2 with the statement, I do not know where the profits 3 go as a reason for spending less. Also, those who 4 report a low opinion of the Texas Lottery Commission, 5 indicate that not knowing where the money goes is a 6 contributing factor to this low opinion. 7 Now, when we then tell the players 8 that the money actually does go toward education and 9 then ask them, how do you feel about the Texas 10 Lottery Commission, we see increased numbers. And, 11 again, especially in players, of more positive 12 feelings once they know the money is going toward 13 education. And, again, even with those groups that 14 are against the Lottery or report to be against the 15 Lottery, there are still some positive responses once 16 they know the money goes towards education. 17 Similarly, when we asked them about how they feel 18 about their spending on lottery games, we get a lot 19 of positive responses once they know that the money 20 is going towards education. 21 So in summary, overall participation 22 in lottery games remains strong in Texas, as evident 23 by player reports and supported by the sales figures. 24 Despite, though, the strong satisfaction in games 25 provided by the Texas Lottery Commission, the public 0075 1 is not informed about who the Commission is and what 2 it does or where the money goes, but regardless of 3 this lack of information, the public has positive 4 opinions about the operations of the Lottery. They 5 feel that the Lottery is trustworthy, makes a 6 positive contribution to the state, and is run fairly 7 and honestly. And if you have any questions, I'll be 8 happy to answer them. 9 CHAIRMAN CLOWE: What do you think? 10 COMMISSIONER COX: Interesting 11 information. 12 COMMISSIONER OLVERA: Was there any 13 input with respect to the fact that it was going 14 towards education as opposed to somewhere else? 15 MS. JAMBOR: I'm not sure I understand 16 your question. 17 COMMISSIONER OLVERA: I'm assuming 18 that most people were in favor of the fact, once 19 it -- the information was revealed that it was going 20 towards education. But was there any feedback that 21 it should go to something else instead? 22 MS. JAMBOR: We don't ask that 23 question, but I will say anecdotally from focus 24 groups, when we -- when we educate people about where 25 the money goes, I have never heard anybody say, I 0076 1 would rather it go someplace else. They're very 2 happy that it's going there and would want even more 3 to go if it could. 4 COMMISSIONER COX: Liz, I think on 5 your slide of the prohibitionists that are -- two 6 slides, that it showed about a 30 percent approval 7 rating when they didn't know where it was going or 8 might not know where it was going, but it fell to 9 about 18 percent when they knew it was going to 10 education. Now, are these people just random? 11 MS. JAMBOR: Are we comparing that one 12 to -- 13 COMMISSIONER COX: A couple back. And 14 it wasn't 18. It was 10. There it's 30. 15 MS. JAMBOR: Okay. We're not -- this 16 is -- okay. This slide is, has your opinion changed. 17 Has your opinion changed. Now that you know the 18 money is going towards education, has your opinion 19 changed. And so you've got 15 percent that are 20 saying, yeah, I'm a little bit more positive about 21 it. So the two slides, you can't relate the two 22 slides. It's two separate issues. One is, what is 23 your overall opinion, and the other one is, now that 24 you know, has that opinion changed. And so, 25 actually, if we were to compare, we're moving -- 0077 1 we're moving some of those negatives into a positive, 2 or some of those no opinions into a positive. 3 COMMISSIONER COX: The -- it looks to 4 me like the red is bigger than the blue. 5 MS. JAMBOR: Right. They still -- I 6 mean, that -- the prohibitionists, they're still 7 going to be negative. It doesn't matter. I don't 8 care if you're giving it to children or education, I 9 don't like the Lottery. It needs to go. That's the 10 view of some of the prohibitionists. Nothing will 11 change that negative opinion. For me, the important 12 point is that for some of them, it does. That 13 information does change their opinion. 14 COMMISSIONER COX: Okay. 15 MR. GREER: Mr. Chairman, 16 specifically, this was a presentation that I wanted 17 to bring to your attention. Liz did a great job on 18 putting this together. Because, for one thing, it 19 gives me some marching orders as far as challenges 20 that are out there. As I travel the state, making 21 speeches, I mean, the first thing that people ask is, 22 you know, where does the money go, and I go into a 23 lot of detail about -- you know, reinforcing the fact 24 that it does go to the Foundation School Fund, and at 25 this point it's 5.9 billion dollars since 1997. And 0078 1 then the secondary aspect is, how can we better get 2 that message out there. So we are looking at some 3 ways that we can do that, and I will be bringing you 4 some ideas at future meetings and giving you some 5 overview perspective of ways that we can better get 6 our message out. There are some challenges there, 7 but I think your information is very useful, and I 8 hope you found this informative. 9 CHAIRMAN CLOWE: We're talking about 10 the Ipsos-Reed report, aren't we? 11 MS. JAMBOR: That's correct. 12 CHAIRMAN CLOWE: And, Reagan, I have 13 questioned you prior to this presentation about -- I 14 guess you call it the slides, 79 and 73, in this 15 report. The second largest negative opinion group, 16 on 73, is they don't know where the money is going. 17 And on 79, the trend, which Liz, you pointed out, is 18 going down of -- from a high of 42 percent to a low 19 currently of 24 percent of being aware that -- 20 thinking where the profits go, is what you're 21 commenting on. 22 What is the -- what is the indication 23 of the leadership that you're getting about this 24 issue in regards to -- more proactive on the part of 25 the advertising information to deal with this lack of 0079 1 information? It's what you run into, and it's what 2 all of us, I think, who are associated with the 3 Lottery run into. And I think the experience that I 4 have had is that it isn't so much who is the Texas 5 Lottery Commission. That's not really important. 6 It's where does the money go. That's the issue. 7 What is your sense of the latitude in advertising and 8 that sort of activity to educate the public on this 9 subject? Where are we? 10 MR. GREER: Specifically, that was one 11 of the things that I was referring to in my prior 12 comments, and Nelda Trevino and I have been working 13 together to get input from legislators and the 14 leadership on moving forward with a message of 15 contributing to the Foundation School Fund. There 16 was some -- in the past, apparently, some negative 17 feelings on the Hill in reference to utilizing that 18 message, and I want to do that. But before I do 19 that, I want to visit with each of you individually, 20 give you some feedback of what we've heard, it's been 21 positive to this point, and then look at ways that we 22 can get the message out in a clear way. 23 CHAIRMAN CLOWE: Well, if we have a 24 marketing problem, and you're doing so many things in 25 a positive -- you're creative, looking at jackpots 0080 1 and more people are going to play, but as a business 2 person, in spite of all of that, I tend to say, well, 3 now what is our problem? You know, what negatives 4 are we dealing with? Why aren't these positive 5 factors creating more results? And I would have to 6 say that if we were in the car manufacturing 7 business, our car rides rough and people don't like 8 the ride. What are we going to do about the ride? 9 If we're going to improve the ride and then we'll 10 sell more cars. People are asking the question, 11 where does the money go. And they don't understand 12 it. They don't know the facts. That is keeping 13 people from participating in the games, or it is at 14 least a negative influence on people. Then I think 15 we've got to objectively, in a conscious decision, 16 address that, and understand if we're doing the right 17 thing to deal with it. 18 MR. GREER: I agree and I'm in full 19 accord with your comments. My understanding was, in 20 the past, they -- they, the marketing division, came 21 forward with some ideas and discussed that with some 22 of the members of the legislature, and received some 23 negative feedback, so they backed off. At this 24 point, we're revisiting that issue. And I have 25 worked with legal and members of the marketing team 0081 1 to come up with terms that would be acceptable. 2 There is a fine line you walk there, and so we will 3 continue to get input, and then come back to you with 4 some ideas of how we're going to handle it. 5 CHAIRMAN CLOWE: Very good. I'm glad 6 you're focused on that. 7 MR. GREER: This helped with that. 8 CHAIRMAN CLOWE: What did we pay for 9 this report? 10 MS. JAMBOR: I'm sorry? 11 CHAIRMAN CLOWE: What did we pay for 12 this report? 13 MS. JAMBOR: Approximately 95,000 14 dollars. 15 CHAIRMAN CLOWE: I have to say it's 16 worth it because it's a good report. I think this is 17 the kind of in-depth marketing information that the 18 Commission needs. And when do we get the report on 19 the make-up of the players? That's a -- a report we 20 get every two years, isn't it? 21 MS. JAMBOR: That's right. And that 22 one, we will start data collection this -- the fall 23 of this year, because it is -- it's due to the 24 legislature every odd year. So we collect the data 25 in the fall before, so that will be ready before the 0082 1 end of this calendar year. 2 CHAIRMAN CLOWE: So we have that in 3 '05? 4 MS. JAMBOR: Correct. Yeah. 5 CHAIRMAN CLOWE: I don't know if 6 you've seen one of those, but that's a very 7 informative report. It actually tells you who the 8 players are. And there is a general misconception, 9 in people that I've talked to about, who really are 10 the big players. And once you get that mind, it 11 helps you to deal with those issues. 12 COMMISSIONER OLVERA: Liz, a quick 13 follow-up question. In '97 when we had the high of 14 42 or 43 percent knowledge of where the money was 15 going, was the answer to that question the general 16 revenue fund? 17 MS. JAMBOR: No. They were saying -- 18 they were saying -- it was 42 percent were saying it 19 was going to education. 20 COMMISSIONER OLVERA: So 42 percent 21 knew the correct answer in '97? 22 MS. JAMBOR: That's correct. And I 23 think that has to do with, that's when it was 24 changed, and so there was a probably a lot of 25 publicity and media related to that, so they were 0083 1 aware of that. 2 MR. GREER: And I just want to remind 3 you, the demographic report is on the website, for 4 the record, for citizens to be aware of and take a 5 look at. 6 CHAIRMAN CLOWE: Okay. Good. Any 7 other questions? Thank you very much. 8 Next is item 18, report, possible 9 discussion and/or action on the agency's website. 10 MR. GREER: Thank you, Mike, David. 11 Specifically, this was an area that I wanted to go 12 into today. Certainly, one of the things that I 13 continue to be focused on is utilizing technology, 14 and the website is a great way to do that. We've 15 made some major strides, positive strides in getting 16 information out, and I thought it was worthwhile to 17 bring you up to date on what I think is some very 18 good information in reference to activity on our 19 website and some other things that are going on 20 with IT. 21 MR. FERNANDEZ: Good morning, 22 Commissioners, Mr. Chairman. My name is Mike 23 Fernandez. I'm the director of information 24 technology. And with me this morning I've got David 25 Glasgow, who is our website coordinator. And what we 0084 1 would like to do this morning is to provide you a 2 report, a status report on website activity. By way 3 of information, David's role really is to coordinate 4 content with all of the divisions, and then work with 5 our technical folks to ensure that it gets up in 6 appropriate time and in the appropriate format. So 7 with that, I'll turn that over to David. 8 MR. GLASGOW: Thank you and good 9 morning. As Mike Fernandez said, my name is David 10 Glasgow. My title is the Website content coordinator 11 for the Texas Lottery Commission. 12 Now, this presentation, I'll outline 13 the growth of traffic to the Lottery Commission 14 websites and some of the reasons for that growth. 15 I'll also give you an overview of how people use our 16 sites. txlottery.org went live at the very end of 17 June of 1999. In the four and a half years since the 18 site's appearance, more than 48 million visitors who 19 looked at 158 million pages. More than 45 percent of 20 that traffic has occurred in the last 12 months. 21 December 2003, was a heaviest month ever, with 3.2 22 million visitor sessions and 9.9 million pages. 23 Before going any further, I would 24 define to a couple of terms. A rough definition of a 25 visitor session is one person visiting our site. If 0085 1 our site were a building, it would be the measure of 2 how many times the front door opens. It could be one 3 person opening the door a million times, or a million 4 people opening the door one time each or any 5 combination in between. A page view is simply that. 6 Seeing a page on our website. Another way to put it 7 is a screen full of information that the viewer sees. 8 Again, if the website were a building, pages would be 9 analogous to the number of rooms a visitor sees on 10 their visit. 11 Now, when I was given charge of the 12 website in August of 2001, I began to collect and 13 analyze traffic and usage information in order to 14 understand what visitors needed and how best to 15 provide that information to them. The following 16 graphics come from that information. This graphic 17 shows the accelerating rate of traffic on our website 18 for each of the last four fiscal years. As you can 19 see, traffic has nearly quadrupled from fiscal year 20 2000 to fiscal year 2003. 21 The next graphic shows the month to 22 month growth of traffic and points out some of the 23 reasons for that growth. As you'll note, growth was 24 relatively stable in the first year and a half and 25 began to climb the beginning of fiscal year 2002. 0086 1 This graph shows some of the reasons for that growth. 2 Steady growth, for example, November -- from November 3 of 2001 to May and June of 2002, have come from a 4 series of continuing improvements. These spikes in 5 usage have come from big jackpots, significant 6 lottery news, like the change in the Lotto matrix and 7 the introduction of Mega Millions, and the site 8 redesign back in February of 2002. There have been 9 three main phases of development since September of 10 2001. The first was site stabilization. The second 11 was a series of improvements based on analysis of 12 what people were using the site for. And the third, 13 after our new infrastructure was put into place, 14 giving us robust structure to meet the growth needs 15 for the future. Traffic on the website is, for the 16 most part, jackpot driven. You can see there is -- 17 an 85 million dollar jackpot, a 75 million dollar 18 jackpot, and so on, we've gotten big spikes in usage. 19 In addition, desire for information on lottery news, 20 like the Mega Millions and Lotto matrix changes, site 21 improvements and new features have also driven 22 traffic to the site. Some examples of site 23 improvement include an easier navigation, gathering 24 all the winning numbers into one page and making them 25 more prominent on the home page, addition of new 0087 1 features like a check your numbers page, back in 2 August of last year, and the site redesign. The new 3 home page loads 20 times faster than the old home 4 page, giving people the results they want faster. In 5 a phrase, we've made the site faster, more useful, 6 and easier to use. 7 Other reasons for growth include a 8 more robust infrastructure. A new vendor has 9 provided us with bandwidth on demand. Too much 10 traffic used to choke our site and shut it down. And 11 now we can serve as many visitors as come, as you can 12 see illustrated by those large spikes in the past 13 year. You can see by this list of the ten most 14 popular pages, people -- and this is from December of 15 2003. People are interested in on-line game results. 16 This has been true pretty much over time, going back 17 to the beginning of the website. And more than 90 18 percent of all page views have always been in this 19 category. All ten of the most popular pages on 20 txlottery.org give information on Mega Millions, 21 Lotto Texas, Cash 5, and other on-line games. 22 The picture for bingo is slightly 23 different. In general, bingo website visitors are 24 interested in getting forms, applications, learning 25 about operator training classes, things like that. 0088 1 In summation, the Lottery Commission's 2 website has shown robust growth and the groundwork 3 has been laid for future growth. I would be happy to 4 answer any questions you may have at this time. 5 CHAIRMAN CLOWE: Any questions? 6 COMMISSIONER COX: One question. What 7 does it cost annually to maintain our website? 8 MR. FERNANDEZ: Our website is 9 outsourced, and our annual cost to that outsourcing 10 vendor is approximately 120,000 dollars. 11 COMMISSIONER COX: 120,000. And then 12 what -- we have some internal costs related to the 13 administration and the like? 14 MR. FERNANDEZ: That's correct. Like 15 David's role. 16 COMMISSIONER COX: So it's a six 17 figure number? 18 MR. FERNANDEZ: Yes, sir. 19 COMMISSIONER COX: Thank you. 20 MR. GREER: I would just like to 21 reinforce my thanks to David and Mike for their work 22 on this. We'll continue to be focused on ways we can 23 utilize the website better. Certainly, one of the 24 things that we've done in conjunction with marketing 25 is getting the word out on what our web address is, 0089 1 txlottery.org. It's on the billboards, play slips, 2 back of the tickets, things like that. I think that 3 has had a positive impact. We've got some great 4 ideas on some things that we're looking at and we'll 5 continue to keep you updated as we move forward. 6 CHAIRMAN CLOWE: Thank you all very 7 much. 8 We've been in session just about two 9 hours now. Let's take a ten-minute recess, please. 10 (RECESS.) 11 CHAIRMAN CLOWE: We'll come back to 12 order now. It's 10:44. The next item on the agenda 13 is number 19, report, possible discussion and/or 14 action on the agency's Survey of Organizational 15 Excellence. Mr. Richardson. 16 MR. RICHARDSON: Good morning, 17 Commissioners. For the record, my name is Jim 18 Richardson and I am the human resources director. 19 I'll try that again. 20 Good morning, Commissioners. For the 21 record, my name is Jim Richardson and I am the human 22 resources director. 23 Commissioners, I am very excited today 24 to bring you the results of the Survey of 25 Organizational Excellence. As you know, the survey 0090 1 is an instrument offered to management by the 2 University of Texas every two years, and is a 3 valuable tool that is used by management to evaluate 4 the employees' perceptions about the work 5 environment. As we move through my brief 6 presentation the survey highlights. I believe you 7 will also be pleased with the results of the survey. 8 I first want to talk about the 9 categories that the Commission falls in for 10 comparison purposes like other like agencies. Our 11 first category is organizational size. The Texas 12 Lottery Commission, of course, is 325 FTEs, so we 13 fall in the 300 to 1,000 reporting group. 14 Our next category is the mission 15 category, which is business and economic development. 16 And we compare with other agencies like the Texas 17 Aerospace Commission, Economic Development, Housing 18 and Community Affairs, the Office of Rural Community 19 Affairs, Transportation, and the Work Force 20 Commission. And then the last category is the MAC, 21 Mid-size Agency Coordinating Council that goes in and 22 picks up some smaller agencies from 100 to 799. 23 Now let's look at some of the 24 demographics, both from those employees who 25 participated in this year's survey. These 0091 1 demographics, as you can see, were pretty 2 representative of the Commission as a whole. Race 3 category, age category, and gender representation. 4 There is another chart down here, this 5 pie chart down here, I would like to talk about. 6 It's a very important chart. This pie chart 7 represents the answer to the question, do you see 8 yourself working for this agency in two years. 91 9 percent of the employees who took the survey 10 answered, yes, they believe they will be working for 11 the Commission in the next two years. This is, of 12 course, a very important bit of information for us as 13 we consider retention and succession planning within 14 the agency. 15 Here is where I started to get a 16 little bit excited about the survey. This year we 17 had 63 percent of the Commission's employees step 18 forward and participate in this survey. As you can 19 see, that is up significantly from 2002 when we were 20 at 52 percent here, and in 2000 we were at 39 21 percent. So we've done a great job this year in 22 promoting participation in the survey. 23 The higher rate of participation also 24 suggests a stronger belief that the data is accurate. 25 The next slide represents how we compare against 0092 1 other agencies in the like categories that I've 2 discussed earlier. And the same-size organizations 3 you see are around 54 percent there, the mission 4 agencies are in the 49 percent, and all respondents, 5 the averages of all the respondents was somewhere 6 around 55 percent, and the Texas Lottery Commission 7 is at 63 percent. I think we did a really good job 8 this year in promoting and encouraging the 9 participation. And I would like to publicly thank 10 all employees who participated in this survey. 11 Now let's look at what was measured. 12 The survey looks at five high-level dimensions broken 13 down into 20 constructs, then into individual items I 14 referred to -- or questions they referred to by. The 15 dimensions capture the total work environment and the 16 constructs broadly profile the agency's strengths and 17 areas of concern. Unless it is your pleasure, I will 18 not get into the individual items or questions today. 19 This next chart -- and I do apologize. 20 We had to pull this from a pdf file. It's not as 21 readable as I would like for it to be. But this next 22 table identifies the categories and dimensions. The 23 first dimension, of course, is work group, and you 24 can see, these are the constructs that are measured 25 below that, accommodations and respective constructs 0093 1 below that. And then you can see, as we go along, 2 the other dimensions and the constructs. The 3 dimensions and the constructs are scored on a scale 4 of 100 to 500. A score of above 300 suggests that 5 employees perceived an issue more positively than 6 negatively. Scores above 400 indicate substantial 7 strength in an organization. Scores below 300 8 suggest that an issue is perceived as more negatively 9 than positively. And scores below 200 are certainly 10 something that agencies need to look at immediately. 11 So here is how we look as far as the 12 work groups. Remember, everything above 300 is 13 viewed positively. All of our work group categories 14 are above 300 this year, and you can see how we 15 compare with various different sizes of agency or 16 mission within a particular group. We are right 17 there in size of agency, we certainly beat some 18 agencies in the mission category, and we are right 19 here along with all the other respondents. So, 20 again, all of our dimensions are above 300 this year. 21 This next category, or next slide 22 looks at what changes occurred from the previous 23 survey. The areas in blue are those areas that are, 24 again -- are high five categories, and they are, of 25 course, the physical environment, which indicates the 0094 1 employees are happy with the work environment that 2 they have. Then the next one is strategic 3 orientation. The next one is quality, which 4 indicates that we believe that we are turning out a 5 quality product. And then job satisfaction, 6 indicating that employees are satisfied with their 7 jobs. And then time and stress, that it speaks to, I 8 have enough time to complete the tasks that I am 9 given. The categories, of course, that were down are 10 supervisor effectiveness, team effectiveness, fair 11 play. The holographic that looks at the total 12 environment of the agency, and then internal 13 communication. 14 Let's take a quick look now at how we 15 compared to the changes from last year. Supervisor 16 effectiveness, if you remember, is still one of our 17 lower categories, but we actually increased 14 points 18 this year in the survey. We bounced back to 19 fairness. Fairness is still at 343, and we actually 20 went up 17 points. Change orientation and goal 21 orientation changed greatly this year. It indicates 22 to us that the organization is prepared for change, 23 and that we are willing to set goals and try to 24 attain those goals. Internal communication, even 25 though it's one of our lower categories down here, 0095 1 internal communication is still -- it went up 12 2 points, but it's still one of our lower categories 3 that we need to consider. Now, you see the big tick 4 to the left here, that's benefits. I suspect that 5 the 27-point loss that we have here was the result of 6 the insurance changes that occurred through ERS in 7 May of this year or last year. It's not something 8 really that our agency can control, but we did have a 9 loss of points there. Although, if you go back to 10 benefits, it's still sitting at 343, so it's not 11 necessarily a bad category. 12 CHAIRMAN CLOWE: Jim, what does that 13 external communication reduction of two points refer 14 to? Just go back one slide. 15 MR. RICHARDSON: Sure. What I want to 16 do is -- is read from the Survey of Organizational 17 Excellence, their definition of what that means. I 18 will find that in just a second. External 19 communication looks at how information flows in and 20 out of an organization. It focuses on the ability of 21 the organization to synthesize or apply external 22 information to work performed by the organization. 23 CHAIRMAN CLOWE: Thank you. 24 COMMISSIONER COX: Jim, go back one, 25 if you will, please. Now, we've got two things here. 0096 1 We've got absolute scores and relative scores, and 2 the absolute scores are all either over 300 or, in 3 one case, very close to 300. So that's good, I hear 4 you say. 5 MR. RICHARDSON: Yes, sir. 6 COMMISSIONER COX: But when it's in 7 red up there, that says that it has declined from the 8 previous year. Is that correct? 9 MR. RICHARDSON: No necessarily, no, 10 sir. What that means is that's the lowest category. 11 There is 20 constructs. Something has to be at the 12 bottom, something is at the top. The five just 13 indicates which ones are at the bottom. In fact -- 14 COMMISSIONER COX: So if I look at 15 physical environment and see 390 in blue, that 16 doesn't mean that it wasn't 390 in blue last year. 17 MR. RICHARDSON: That is correct. And 18 I'll have a slide ready that talks about comparisons 19 of highs and lows. 20 COMMISSIONER COX: Thank you. 21 MR. RICHARDSON: Okay. In fact, here 22 we are. So let's take a look at what has happened 23 since 2000 with our lowest scores. Did we make any 24 improvements in the agency. You can see, across the 25 board -- if I can get -- with fairness, we went from 0097 1 247, we've almost increased 100 points in 2004. 2 Supervisor effectiveness, from 264 to 337. 3 Empowerment and team effectiveness, across the board 4 you can see that all the categories that we were down 5 in 2000, we certainly improved those. You look at 6 fair pay, it gets the lowest category. And, again, 7 something has to be the lowest, but it doesn't 8 necessarily mean that it's bad. Fair pay hit it -- 9 the lowest group in 2002, but we actually improved 10 last year -- or this year, to 298, but -- over last 11 year, but we're still in the lowest category. 12 And change orientation was on the 13 lowest list last year, and it came off of that this 14 year. Holographic made it for the first time this 15 year. 16 Part of the problem is, is that we're 17 getting -- all of our scores are getting so high, 18 something on the bottom is going to look bad. But 19 it's not necessarily bad. So let's look at how we 20 compare with our highest scores. In other words, did 21 we just sit and say, well, we're only going to 22 concentrate on the lowest scores. We are not going 23 to worry about the highest scores, because those 24 things are taking care of themselves. No, we didn't. 25 We still improved in all of those categories. You 0098 1 can see across the board, in strategic orientation, 2 one dip was here in benefits, we went down the 27 3 points, but it's still at 343. Across the board, we 4 improved, even in our highest categories. In 2002, 5 job satisfaction actually makes the highest list and 6 it improves by one percentage or one point. And then 7 time and stress makes it for the first time in 2004. 8 So where do we go from here? Do we 9 just sit tight because we're above 300, and with 63 10 percent participation? No, I don't think so. That's 11 not the Lottery way. Do we form work groups and 12 evaluate the lower scoring constructs and recommend 13 areas for improvement? I think that's a good idea. 14 We look at areas for continued success in our higher 15 scoring constructs. That's also a good plan. And 16 then we set a goal to reach 400 in some constructs. 17 We haven't hit 400 yet, so in 2005, I would like to 18 be at 400 in some constructs, with at least an 80 19 percent participation rate across the board, which 20 would definitely be a high participation rate for 21 this survey. 22 What kind of questions can I answer 23 for you? 24 COMMISSIONER COX: On your set of 25 goals to reach 400 in some constructs, that won't 0099 1 just be a random, I hope we can do it here because 2 that would be the easiest. It will be trying to get 3 it to 400 in those areas that we most highly value. 4 Would that be the case? 5 MR. RICHARDSON: Yes, sir. And I 6 would like to look at how we can improve issues and 7 we hope that we will improve it to a point that the 8 perception is that we get above 400 in every 9 category. Whether it's a low or a high now, it 10 doesn't really matter to me. 11 COMMISSIONER COX: For instance, on 12 fair pay, I recognize that some portion of that is 13 the fact that we are a State agency and we don't pay 14 at the level that other organizations might. But 15 that could also be a perception that our salary 16 administration program isn't fair. So I hope that 17 we'll look real carefully at what caused us to get 18 that score, and if it's the fact that State agencies 19 pay less than the private sector, well, so be it. We 20 all knew that. But if it's, they don't feel the 21 salary administration program is fair, then I would 22 like to see us really target improvement there. 23 MR. RICHARDSON: Correct. And those 24 will be some of the issues that we look at. The 25 other thing that I want to tell you about is, during 0100 1 my presentation to staff, I told them, in this 2 particular category, that it was somewhat confusing 3 for them, and I guess it's maybe because I know more 4 about the data than they may or may not know. So I 5 wanted to make sure that State employees, or at least 6 Texas Lottery Commission employees, knew that on 7 average, Texas Lottery Commission employees make 736 8 dollars more per month than the average State 9 employee. Now, those numbers have actually gone up. 10 For the first quarter of '04, staff hasn't heard yet, 11 it's at 775. So, on average, Texas Lottery 12 Commission employees make 775 dollars a month more 13 than other State employees. 14 COMMISSIONER COX: But is that just in 15 cash compensation? 16 MR. RICHARDSON: Yes, sir. In base 17 salary. 18 COMMISSIONER COX: And, of course, one 19 of the things that I know that we help people 20 understand when they try to compare to the private 21 sector is the -- that our benefits, in particular, 22 our retirement are something that you're not going to 23 find very often and decreasingly often in the private 24 sector. 25 MR. RICHARDSON: Correct. 0101 1 CHAIRMAN CLOWE: Reagan, what are your 2 comments? 3 MR. GREER: Well, obviously, this is 4 the first time I've seen anything like this since 5 I've been here, so I was pleased to be able to have 6 some history and feel good about the final slides as 7 an overview. I agree with Jim that I want to hit 8 that 80 percent participation mark, because I think 9 that's where you get the best indication of where you 10 are you, a broader group of participants. I'm 11 pleased with 63 percent, but we can do better. And I 12 see a number of these areas, specifically, those 13 bottom five scoring areas, as things that I will 14 focus on in the year to come. But, especially, I 15 have to look at some of the things that I really 16 focus on, which is team effectiveness, and strategic 17 orientation. There is a lot of things in there that 18 I have to give credit to our team of directors who 19 have done a great job in taking those scores to a 20 higher level, but we're going to do better next year. 21 CHAIRMAN CLOWE: Well, I would like to 22 say on behalf, I think, of the Commissioners, we 23 think this is very important. And we want 24 improvement, we want employees in this agency to have 25 confidence in the leadership team and feel like 0102 1 they're important, because they are, and be 2 appreciated. And we want to them to have some fun. 3 And I think you share and have demonstrated through 4 what you have accomplished in almost a year, I guess, 5 now that you've been here, your commitment. I've 6 seen that in place, and setting that example, I 7 think, has created an environment that's positive 8 here. It's important to us as the Commissioners that 9 this agency demonstrate its ability to operate, do 10 the job, and set an exemplary pace in all of these 11 categories. And I'm very pleased personally to see 12 this report and the improvement and the quality of 13 life in this agency that it represents. A lot of 14 this is psychic compensation, in addition to the 15 monetary compensation aspect, and both of those work 16 together to make a positive employment relationship. 17 So I think we certainly look forward to the things 18 that are going to be created by this leadership team 19 and this agency in the future. 20 What did we pay for this report, Jim? 21 MR. RICHARDSON: I believe that it is 22 around 1100 dollars, but I would have to check that. 23 Is that the question? 24 CHAIRMAN CLOWE: Very interesting. 25 Very interesting. Thank you very much. I believe 0103 1 you wanted to pass the next item, number 20. Is that 2 correct? 3 MR. RICHARDSON: If we could, yes, 4 sir. 5 CHAIRMAN CLOWE: We'll go to item 21, 6 report, possible discussion and/or action on the 78th 7 Legislature and/or implementation of legislation 8 affecting the Texas Lottery Commission. 9 Good morning, Nelda. 10 MS. TREVINO: Good morning, 11 Commissioners. For the record, I'm Nelda Trevino, 12 the director of governmental affairs. 13 I have a very brief report with 14 regards to the 78 Legislature. Last week, the 15 Lieutenant Governor issued a -- his interim committee 16 charges for Senate committees, and while there are no 17 specific charges issued specifically related to the 18 Lottery or Charitable Bingo, there are several items 19 the Senate Finance Committee will be studying that 20 will be applicable to all State agencies. We will 21 monitor these interim committee activities and 22 provide you any appropriate updates. 23 With regard to an update on the 24 implementation of legislation, there were three bingo 25 rules considered today by the Commission related to 0104 1 various provisions that were contained in House Bill 2 2519. Also, as a result of provisions related to 3 management-to-staff ratios, included in House bill 4 3442, several organizational structure changes will 5 be implemented to comply with these provisions. We 6 continue to monitor the progress of implementing 7 legislation and will bring any appropriate matters to 8 your attention. 9 This concludes my report on this 10 agenda item and I'll be happy to answer any 11 questions. 12 CHAIRMAN CLOWE: Are there any 13 questions? Thank you, Nelda. 14 And I believe you have the next item, 15 which involves discussion or action on the Sunset 16 process. 17 MS. TREVINO: Yes, sir. Last week the 18 Sunset Advisory Commission staff held an introductory 19 meeting with executive management of the agency, and 20 as I reported in our last meeting, Karen Latta, who 21 is with us here today, with the Sunset Commission, 22 will be the project manager for the review of our 23 agency. As provided in House bill 2455, the Sunset 24 staff will conduct a limited-purpose review to 25 evaluate the appropriateness of its 2002 0105 1 recommendations regarding the agency. The Sunset 2 staff anticipates issuing their staff report in 3 April. The Sunset Advisory Commission will then hold 4 a public testimony hearing on the agency on the 5 recommendations of the Sunset staff. The meeting for 6 public testimony is tentatively scheduled for May 7 18th and 19th of 2004. The Advisory Commission will 8 then schedule a future meeting in July to make a 9 decision on the recommendations related to our 10 agency. The Sunset Commission will then adopt their 11 recommendations for the full legislature to consider 12 when the legislature convenes in its regular session 13 in January of 2005. 14 Sunset staff would like to receive 15 input from interested parties to help further their 16 evaluation of the 2002 Sunset recommendations. And 17 if anyone is interested in sharing comments regarding 18 the previous Sunset recommendations, they should 19 contact Karen Latta at the Sunset Commission, 20 preferably by February 27th, so comments can be fully 21 considered. Available on our website, we do have the 22 Sunset 2002 staff report and the Sunset Commission 23 staff contact information, also. 24 And that concludes my report and I 25 will be happy to answer any questions. 0106 1 CHAIRMAN CLOWE: It's my hope that 2 each of the three Commissioners will ask you to 3 schedule an appointment and meet with that group so 4 that they can give their input. 5 MS. TREVINO: We'll be working on 6 getting those meetings scheduled. 7 CHAIRMAN CLOWE: Thank you very much. 8 Next is item 23, consideration of and 9 possible discussion and/or action on the agency's 10 business plan. Good morning, Mr. Anger. 11 MR. ANGER: Good morning, Chairman. 12 Good morning, Commissioners. For the record, my name 13 is Michael Anger and I'm the lottery operations 14 director here at the agency. 15 With your permission, I would like to 16 take up item 23 and item 24 on your agenda as related 17 items, the agency business plan as well as the 18 long-range and business plan services procurement. 19 Related to the agency's business plan, 20 a request for proposals for long-range business plan 21 consulting services was issued by the agency on 22 November 24th. Doctor Gary M. Kinghead (phonetic) 23 has been named the apparent successful proposer to 24 that RFP, and agency staff are currently negotiating 25 involving that contract for those service at this 0107 1 time. 2 This concludes my report and I would 3 be glad to answer any questions that you have. 4 CHAIRMAN CLOWE: I believe there are 5 none. 6 MR. ANGER: Thank you. 7 COMMISSIONER COX: I don't have a 8 question, but I think have an observation. I think 9 that's a wonderful choice. Doctor Kinghead has 10 tremendous experience with business plans, probably 11 as much as anybody in the country, and he will, I 12 think, be an incredible resource for us. 13 MR. ANGER: Yes, sir. Thank you. 14 CHAIRMAN CLOWE: All right. We're 15 going from Anger to Grief and the business plan to 16 the Strategic Plan, item 25. 17 MR. GRIEF: And Mr. Chairman and 18 Commissioners, we'll move from Grief to Blizzard, as 19 Ms. Blizzard comes forward. 20 CHAIRMAN CLOWE: This is joy. This is 21 pure joy. No other agency has that kind of variety. 22 MS. BLIZZARD: Good morning, 23 Commissioners. For the record, I'm Karen Blizzard, 24 senior editor for the Texas Lottery Commission. I'm 25 here today to give a report on the agency's strategic 0108 1 plan for 2005 through 2009. Earlier this month, the 2 projects and graphic designer Daniel Castro, 3 presented cover and report design concepts to the 4 editorial board and a design was selected. Also in 5 January, the project editorial board and the agency's 6 division directors conducted a review of the agency's 7 goals, objectives and strategies. 8 That's all I have today and I will be 9 happy to answer any questions that you have. 10 CHAIRMAN CLOWE: Thank you, ma'am. 11 Next item 26, consideration and 12 possible discussion and/or action, including 13 proposal, on amendments 16 TAC 401.312, relating to 14 the Texas Two Step on-line game. 15 MS. KIPLIN: Commissioners, in your 16 notebook today have you a document that is the 17 proposed amendments to the Texas Two Step on-line 18 game. Staff is requesting that you do vote to 19 propose this -- these amendments to the game for 20 public comment in the Texas Register for the 30-day 21 public comment period. The amendments are 22 eliminating the language that identifies the specific 23 draw dates for the game. The amendments -- proposed 24 amendments provide flexibility to change the drawing 25 schedule, including the draw days, without undergoing 0109 1 a rule change in the future. The proposed amendments 2 require the executive director to provide advanced 3 notice to the public prior to changing a drawing 4 schedule. You heard a presentation earlier this 5 morning and the staff's indication that there was a 6 need to change these particular draw days for this 7 game. That's one purpose, but the major purpose is 8 to provide flexibility so that, in the event that 9 there is an indication in this game that there is a 10 need to change the drawing schedule, whether it's the 11 days or the draw time, it will not require coming to 12 the Commission for that. It's a policy decision in 13 terms of allowing the Executive Director that kind of 14 authority. I don't believe there is any requirement 15 that would require that particular language to be in 16 a game rule. 17 And Commissioner Cox, if you recall, 18 there was a little bit of questioning of me at the 19 last Commission meeting regarding, I think, that 20 particular issue in terms of what all was needed. So 21 that's trying to address those issues. 22 COMMISSIONER COX: Well, my concern 23 continues to be that we do this as quickly as 24 possible, and if there -- apparently, there is no way 25 that we can (inaudible) take the action that is so 0110 1 clearly indicated, but that we move this just as 2 quickly as we can. 3 MS. KIPLIN: And I think with the 4 change in the rule, and we'll be bringing up as part 5 of the rule revision -- as y'all recall, y'all 6 adopted a rule review, re-adopting the rules in the 7 State Lottery Act, Lottery Commission portion of the 8 rules. We'll be looking at making this a similar 9 change in other on-line games so that we won't be 10 faced with this situation in the future. I think, 11 hopefully, that will address at least one of the 12 concerns that you raised. 13 COMMISSIONER COX: Okay. 14 CHAIRMAN CLOWE: And this proposed 15 rule applies only Texas Two Step? 16 MS. KIPLIN: Yes, sir. You'll see in 17 the upcoming Commission meetings additional proposed 18 rule makings, and part of it will be bringing forward 19 other on-line game rules, in part, doing the same 20 thing. 21 CHAIRMAN CLOWE: Is there a motion? 22 COMMISSIONER OLVERA: So moved. 23 COMMISSIONER COX: Second. 24 CHAIRMAN CLOWE: All in favor, please 25 say aye. Opposed, no. The vote is three-zero in 0111 1 favor. 2 The next item is number 27, report, 3 possible discussion and/or action on the agency's 4 audit services procurement. Good morning. 5 MS. MELVIN: Good morning, 6 Commissioners. For the record, I am Catherine 7 Melvin, director of the internal audit division. And 8 with me. 9 MR. MARKER: My name is Andy Marker, 10 Assistant General Counsel for the Commission. 11 MS. MELVIN: Internal audit, in 12 cooperation with and assistance from other Commission 13 staff, is currently reviewing all audit services 14 contracts. We are considering the benefits of 15 issuing a single RFP covering all these required 16 audits. At this time, there are no additional 17 details while we work to finalize the draft RFP. 18 Commission action is not required today. We will 19 certainly keep you informed as we work through the 20 procurement process and invite your input and 21 guidance. 22 Do you have any questions for us at 23 this time? 24 CHAIRMAN CLOWE: Thank you very much. 25 Next is item 28, consideration of and 0112 1 possible discussion and/or action on the agency's 2 fiscal year '04 internal audit. 3 MS. MELVIN: Thank you, Commissioners. 4 At this time, I would like to invite our assistant 5 director of internal audit to join me at the table if 6 it pleases the Commission. 7 MR. DOYLE: Good morning, 8 Commissioners. For the record, I'm Greg Doyle. 9 CHAIRMAN CLOWE: Good morning. 10 MS. MELVIN: We appreciate the 11 opportunity to provide our vision for internal audit 12 efforts at the Texas Lottery Commission during the 13 2004 fiscal year. The document before you provides 14 our audit plan as required by professional auditing 15 standards and the Texas Government Code 2102. The 16 internal audit division is committed to being a 17 valuable resource in improving the agency's 18 operation, and is proposing a plan that targets key 19 areas, yet builds in flexibility to allow for the 20 Commissioners and management's input and 21 unanticipated requests. Audit plans act as a guide 22 for audit shops. According, ours are built into the 23 plan for requests that may arise during the year so 24 that we can be responsive to the more immediate needs 25 of the Commissioners and of management. While the 0113 1 list of proposed projects results from our 2 consideration of a wide ranging scope of projects, it 3 does not address or provide coverage for all TLC 4 components or systems and operations. Our goal is to 5 optimize our limited resources to provide reasonable 6 coverage in areas we believe require the most 7 attention. However, we cannot address every risk 8 area, and thus it is important for the Commission and 9 management to understand the limitations of the audit 10 coverage and the risk that they assume in the areas 11 not audited. We believe that this plan allocates the 12 resources of the internal audit division to the most 13 important priorities and risks of the agency at this 14 point in time. I certainly want to thank 15 management's assistant and time in providing input 16 and information that led to the development of this 17 plan. 18 That concludes my presentation, and 19 unless Greg has any additional comments. 20 MR. DOYLE: No comments. 21 MS. MELVIN: We would be happy to 22 answer any questions. 23 CHAIRMAN CLOWE: Any questions? 24 COMMISSIONER COX: No questions, Mr. 25 Chairman. I've worked with Catherine as she 0114 1 developed this, and I've been very impressed with her 2 approach to it. She took a sound approach to it, and 3 she looked at her results and said, I think maybe we 4 can improve the approach, and went back and refined 5 some of the methodology, and I think the results she 6 has is a real good preliminary allocation of time, 7 which, of course, then she will vary as she finds 8 things or doesn't find things and determines more 9 about the complexity (inaudible). 10 CHAIRMAN CLOWE: Very good. And I 11 believe this requires a motion for adoption. 12 MS. KIPLIN: Yes, that's correct. 13 2102.008 of the Government Code does indicate that 14 the annual audit plan developed by the internal 15 auditor must be approved by the State agency's 16 governing board. 17 CHAIRMAN CLOWE: So moved. 18 COMMISSIONER COX: Second. 19 CHAIRMAN CLOWE: All in favor, please 20 say aye. Opposed, no. The vote is three-zero. 21 Do you have a copy you want to us 22 sign? 23 MS. MELVIN: If you could sign one of 24 the copies in front of you, that would be helpful. 25 MR. GREER: Mr. Chairman, before we 0115 1 get off that. Excuse the interruption. But I just 2 want to reinforce my personal thanks and commitment 3 to this process. Catherine and I have a very good 4 relationship. We've glad to have Greg on the team 5 now. And I just want to publicly commit to each of 6 you my continued cooperation with our internal audit 7 division. It's a pleasure to work with them and I 8 look forward to implementing this process. 9 CHAIRMAN CLOWE: Thank you very much. 10 MS. MELVIN: Thank you. 11 CHAIRMAN CLOWE: I have a copy here 12 for you. 13 Next is item 29, consideration of and 14 possible discussion and/or action on the lottery 15 operator contract, including approval of an amendment 16 to the lottery operator contract and/r whether 17 negotiation of the Lottery operators contract in an 18 open meeting would have a detrimental effect on the 19 Lottery Commission's position in negotiations of the 20 Lottery operator contract. Mr. Grief. 21 MR. GRIEF: And Commissioners, joining 22 me on this item, instead of Ridgely Bennett, will be 23 Andy Marker, Assistant General Counsel. 24 MS. KIPLIN: And before Mr. Grief 25 makes any comments, I do want to bring to your 0116 1 attention that consistent with the last time that 2 this -- I think, an amendment came to your attention, 3 there is an opportunity, should you wish to take it, 4 to convene in executive session to deliberate the 5 negotiations of the Lottery operator contract, 6 including, obviously, amendments. You must make a 7 determination in writing, though, that an open 8 meeting would have a detrimental effect on the 9 Commission's position on the negotiations. 10 CHAIRMAN CLOWE: Commissioners, I 11 recommend that this subject be discussed in the open 12 meeting. 13 COMMISSIONER COX: I agree. 14 CHAIRMAN CLOWE: Okay. 15 MR. GRIEF: Commissioners, recently 16 Gtech Corporation and Gtech Texas have made changes 17 in the way some of their lines of business are being 18 conducted. For example, here in Austin, Texas, a 19 national response center has recently been built by 20 Gtech and implemented. And that response center is 21 actually a very large phone bank that responds to 22 phone calls from retailers about instant ticket 23 distribution and/or technical problems with the 24 equipment that Gtech provides for those retailers. 25 This response center, phone bank, not only handles 0117 1 calls from Texas retailers, but also handles calls 2 from retailers in other states where Gtech provides 3 these types of services. And you may recall that a 4 recently executed contract was -- an amendment was 5 done which addressed that national response center, 6 and set call response times that Gtech has to adhere 7 to or face contract sanctions. In addition, several 8 months ago, Gtech also established an Austin 9 technology center which employees software engineers 10 supporting Texas and other U.S. and international 11 lotteries. Finally, and reason that this item is on 12 your agenda today, Gtech has also recently 13 centralized their data centers from several other 14 states, here in Austin, Texas. And they've developed 15 what Gtech calls a consolidated data center, or a 16 CDC, facility that houses the back office lottery 17 computer systems for several state lotteries, 18 including Texas. All of this development has 19 resulted in significant facility needs and changes 20 for Gtech. I want to be clear that Gtech has kept us 21 informed since the inception of this plan. Their -- 22 Gtech's administrative offices have recently moved to 23 a new location here in Austin, which is not far from 24 the consolidated data center, which was the previous 25 location of the administrative offices. With this 0118 1 separation of the administrative offices from the 2 data center, the Lottery operations and services 3 contract needs to be amended to ensure that Gtech is 4 obligated to provide appropriate office space for 5 Texas Lottery Commission staff at both the data 6 center and the administrative office. And I provided 7 each of with you a copy of the proposed contract 8 amendment that addresses this issue, and Mr. Marker 9 and will be happy to answer any questions you have. 10 Ramon Rivera, the account general manager for Gtech 11 Texas is also present in our meeting today and he's 12 available for questions as well. 13 CHAIRMAN CLOWE: Are there questions 14 or comments? 15 COMMISSIONER COX: I have a comment. 16 Ramon, I think it's outstanding that you have brought 17 so many of your functions here to Austin, Texas. 18 MR. RIVERA: Thank you, sir. 19 CHAIRMAN CLOWE: Anything further? 20 What action is required by the 21 Commission on this? 22 MS. KIPLIN: I think, consistent with 23 your oversight of this contract, you would want to 24 authorize the Executive Director to enter into this 25 contract amendment. 0119 1 CHAIRMAN CLOWE: Commissioners, any 2 comments or questions? Is there a motion? 3 COMMISSIONER COX: So moved. 4 COMMISSIONER OLVERA: Second. 5 CHAIRMAN CLOWE: All in favor, please 6 aye. Opposed, no. The vote is three-zero in favor. 7 Is there an order? 8 MS. KIPLIN: No. Think the vote on 9 the record is sufficient. 10 CHAIRMAN CLOWE: All right. 11 MS. KIPLIN: But I would like to make 12 one comment. I'm sorry to interrupt you. And that 13 is that this is something that has been consistent 14 and you all have requested this kind of oversight on 15 this project as well as on other ones. I do need to 16 go ahead and say, though, and this has been an issue, 17 I think, during the course of Sunset, that the 18 Executive Director does have the sole authority to 19 enter into contracts on behalf of the services and 20 goods being provided to the Lottery. This is simply 21 an affirmation or a reaffirmation of your wanting 22 that kind of level of oversight. 23 CHAIRMAN CLOWE: Thank you for making 24 the record abundantly clear. 25 Commissioners, with your approval, 0120 1 we'll not go into executive session now but continue 2 to deal with matters on the public docket. 3 And we have an individual who is in 4 the audience under item 35, under the public comment 5 section, who wishes to appear and make a comment. 6 That's Mr. Keith Elkins. Mr. Elkins, would you come 7 forward at this time, please. 8 MR. ELKINS: For the record, my name 9 is Keith Elkins. I'm here today as president of a 10 new lottery trade association called TLG, 11 Incorporated, doing business as The Lottery Group. I 12 would like to point out that also my business 13 partner, Mr. Rob Kohler (phonetic) is here with me 14 today and he's in the audience. 15 Chairman Clowe, Commissioner Cox, 16 Commissioner Olvera, Mr. Greer, Mr. Grief, former 17 lottery colleagues, good morning. Thank you for 18 affording me this opportunity to briefly tell you 19 about The Lottery Group and why we believe it can and 20 should provide a win-win relationship for the Texas 21 Lottery Commission and for the people of Texas. 22 Simply stated, The Lottery Group is a trade 23 association that represents lottery retailers, 24 players, and its winners. In addition to a variety 25 of consulting services, we will also be providing our 0121 1 members with up to date, informative, timely 2 communications about this agency, any changes to the 3 games of Texas, regulatory procedures, and other 4 information as it relates directly or indirectly to 5 our members' interests. The Lottery Group will be 6 advocacy organization with a strong presence, both 7 here at this Commission, as well as in the halls of 8 State government. Our mission is to work on behalf 9 of our members' interests in hopes of also assisting 10 you in making the Texas Lottery the very best, and a 11 model agency that other states will once again aspire 12 to copy. Now, Rob and I both view this new 13 relationship with our eyes wide open, our sleeves 14 rolled up, and our intentions to enter into a 15 professional, proactive, mutually beneficial 16 relationship from this day toward with you and the 17 members of the Lottery Commission staff. We do not 18 seek nor do we want any special treatment, any 19 special access, or information. However, from our 20 past experience working with this agency for more 21 than 17 years collectively, we both know that when 22 this Commission speaks by sending a strong message of 23 expected cooperation, the Texas Lottery will listen 24 and it will respond accordingly. In closing, and in 25 trying to be brief, I would like to also inform you 0122 1 that effective today, The Lottery Group has called 2 upon Governor Rick Perry to add retailer compensation 3 issues such as higher sales commissions and ticket 4 cashing incentives for retailers to any future 5 legislative special session that he may call. 6 Now, if permissible, Rob and I will be 7 more than glad to answer any questions you might 8 have. If not, we thank you again for this 9 opportunity and we both look forward to working with 10 you and the Commission staff as we all move forward. 11 CHAIRMAN CLOWE: Are there any 12 questions or comments? 13 MS. KIPLIN: Well, I must say before 14 somebody wants to ask a question, this is a matter of 15 public comment. It's not specifically noticed for -- 16 for the agenda, and the Open Meetings Act is very 17 restrictive in what you can do with a person who 18 comes under an item of public comment. And your -- 19 CHAIRMAN CLOWE: No questions, is that 20 what you're saying? 21 MS. KIPLIN: Yes, I'm saying no 22 questions. 23 CHAIRMAN CLOWE: Thank you, Mr. 24 Elkins. 25 MR. ELKINS: We expected that. Thank 0123 1 you. 2 CHAIRMAN CLOWE: The next item on the 3 agenda will be item 32, consideration of the status 4 and possible entry of orders. And Counsel, if you'll 5 take us through that, I believe we have a cases 6 letter A through J. 7 MS. KIPLIN: Commissioners, I would 8 like to take up first letters A through F. These are 9 all lottery retailers that the -- have gone before 10 the State Office of Administrative Hearings, 11 administrative law judge, and in each of those cases 12 has recommended revocation of a license for 13 insufficient funds available at the time that the 14 time they swept their accounts. I do recommend you 15 adopt those recommendations and the order in each of 16 those matters. 17 CHAIRMAN CLOWE: So moved. 18 COMMISSIONER COX: Second. 19 CHAIRMAN CLOWE: All in favor, please 20 say aye. Opposed, no. The vote is three-zero to 21 adopt the recommended orders in cases letters A 22 through F. 23 MS. KIPLIN: Commissioners, I would 24 like to turn your attention to item G, Military Order 25 of the Cooties, 44 Auxiliary. This is a bingo case. 0124 1 The -- the administrative law judge is recommending 2 revocation of the license for failure to timely file 3 bingo operator's quarterly reports and pay prize fees 4 for two quarters, failing to timely remit the 5 estimated prize fee penalty for the quarter ending 6 March 31, 2003, failing to timely remit the 7 charitable distribution, and failing to submit a bond 8 in the required amount. The staff does recommend 9 that you vote to adopt the proposed findings and 10 conclusions and the order revoking the license? 11 CHAIRMAN CLOWE: Do you have any 12 comments, Mr. Atkins? 13 MR. ATKINS: No, sir. 14 CHAIRMAN CLOWE: Is there anyone in 15 the audience representing Military Order of the 16 Cooties? 17 Is there a motion? 18 COMMISSIONER OLVERA: So moved. 19 CHAIRMAN CLOWE: Second. All in 20 favor, say aye. Opposed, no. The vote is three-zero 21 in favor. 22 MS. KIPLIN: Commissioners, remaining 23 items, H, I, and J are agreed orders -- or they're 24 agreements between the staff and the respondent. 25 Staff does recommend that you enter into a consent 0125 1 order for the -- in The Korean Senior Citizens 2 Association of Dallas. That's item H. And Optimist 3 Club of Aerospace Fort Worth, that's item J, for 4 playing outside of licensed times. In each of those 5 cases, the staff did indicate there were mitigating 6 circumstances. 7 In the VFW Post 7211, which is item I, 8 it was for conducting bingo without the presence of 9 an active member. And in each one of these, they've 10 asked for -- the staff has asked for procedures that 11 would hopefully ensure that these kind of violations 12 don't occur in the future and staff does recommend 13 that you enter into these agreed orders. 14 CHAIRMAN CLOWE: Mr. Atkins, any 15 comment? 16 MR. ATKINS: No, sir. 17 CHAIRMAN CLOWE: Is there a motion? 18 COMMISSIONER COX: So moved. 19 COMMISSIONER OLVERA: Second. 20 CHAIRMAN CLOWE: All in favor, please 21 say aye. Opposed, no. The vote is three-zero in 22 favor. Thank you, Counselor. 23 Now we'll move to item 33, the report 24 by the Executive Director. 25 MR. GREER: Mr. Chairman and 0126 1 commissioners, good morning. In summation of the 2 last month's activities, there is a few things I 3 wanted to touch on. Specifically, I wanted to thank 4 the staff for their work as we move forward on 5 analyzing the effect of Mega Millions on Lotto Texas 6 and Texas Two Step, which were reported on this 7 morning. There has been a lot of press, a lot of 8 interest, as the Lotto Texas game continues to excel 9 to a record level of 70 million. And it's pretty 10 exciting. It's not the 85 that we hit in '01, but 11 we're getting there, and it's been a good process to 12 see the Lotto Texas can remain healthy with Mega 13 Millions alongside it. I did want you to know that 14 the current Mega Millions jackpot of 73 million will 15 role to 85 million if there is a -- no winner, no 16 winning ticket tonight. And, again, I want to 17 reiterate my happy -- I don't know. Just general 18 positive perspective and happiness that I have for 19 the fact that the Mega Millions game continues to 20 increase our overall on-line sales. We did hit the 21 11 billion mark, which was mentioned earlier in our 22 financial report, and I did want to clarify again to 23 your that 5.9 billion of that has gone into the 24 Foundation School Fund. 25 Since our last Commission meeting, 0127 1 I've don 17 interviews, three newspaper, three TV, 11 2 radio, and continue to be available and active in 3 working with the media. From a corporate outreach 4 perspective, the deputy executive director and I did 5 tour the national response center of Gtech, and we 6 just talked about that a moment ago, to see what is 7 going on over there and look at the physical plant. 8 I've made speeches recently in Temple to the Temple 9 Lions Club, was in Fredericksburg at the ex-military 10 flyers, visited retailer -- 11 CHAIRMAN CLOWE: How many attended 12 that presentation? 13 MR. GREER: About 50. Between 50 and 14 75 -- 15 CHAIRMAN CLOWE: Those guys are all in 16 their late 70s and 80s, aren't they? 17 MR. GREER: Yes, sir. It was a good 18 group, good outing. 19 CHAIRMAN CLOWE: Well, I'm sort of an 20 ad hoc member. I wanted to be. 21 MR. GREER: I've got to tell you, I 22 really enjoy getting out and visiting with retailers 23 up and down both my routes. Visiting with the 24 retailers one and one is great and hearing their 25 comments and getting input from them is important. 0128 1 And, specifically, touching on what we, you know, 2 talked about earlier, answering questions of players 3 and nonplayers alike, clarifying specifically where 4 does the money go, all the things that go with that 5 is good. And I'm looking forward to continuing an 6 outreach program and getting out in the communities 7 around the state. 8 On the 22nd, I attended the State 9 Employers Charitable Campaign award ceremony. We, as 10 you know, had a great participation level in that. I 11 was proud to be a part of that. I met with the 12 Sunset staff on the 22nd as well, and I know they're 13 here today and will continue to pledge my support of 14 that process. 15 Gary and I, the deputy executive 16 director and the executive director for the first 17 time in the history of the lottery have both 18 graduated from the University of Texas LBJ School of 19 Governors Executive Development Training Program. We 20 graduated yesterday. Visited with the UT chancellor 21 at his home on Wednesday evening. Have had a great 22 opportunity to build relationships around Austin and 23 we're proud to bring that to you today. 24 CHAIRMAN CLOWE: And we want to 25 congratulate you on that. We -- I have seen your 0129 1 plaque and it's impressive, and the effort that you 2 put into that is well worth it. We appreciate you 3 doing that. 4 MR. GREER: Absolutely. We thank you 5 for supporting us. 6 We are putting together, working with 7 Nelda, a letter to the legislators right now to 8 outline and give an overview on some misunderstanding 9 surrounding SSTs. We look forward to clarifying the 10 record on that issue. And I thank the governmental 11 affairs group for helping with that project. 12 Our theme for the month was, 13 obviously, it's new year, new beginning, higher 14 expectations. We continue to focus on our goals that 15 we set for last year and are making some strides in 16 that direction. I talked with the staff about 17 following through on New Year's resolutions, not 18 disillusions, and that went over well. And, again, 19 as I approach my one-year anniversary, I want to 20 thank you for the honor being the executive director 21 of the Texas Lottery. 22 CHAIRMAN CLOWE: What is your one-year 23 anniversary? 24 MR. GREER: It would be February 28th, 25 sir. 0130 1 CHAIRMAN CLOWE: We'll probably have 2 another meeting. Very good. 3 Any questions, Commissioners, or 4 comments? 5 Then we'll ask for the report by the 6 Charitable Bingo Operations director. Mr. Atkins. 7 MR. ATKINS: Thank you. 8 Mr. Chairman, members, as my report 9 indicates, we do have one vacancy with a pending 10 recommendation. We've discussed earlier that the 11 next Bingo Advisory Committee meeting is tentatively 12 scheduled for February 26th. Fourth quarter reports 13 for 2003 were due on the 25th. Since that was a 14 Sunday, the due date shifted to the following Monday, 15 so we are currently, what we term, in peak, where we 16 are processing those returns. 17 The staff attended a conference 18 yesterday with the American Legion and their 19 mid-winter conference. There were approximately 25 20 attendees at that. We got a very good response from 21 them on our presentation. 22 So you'll know, I'll be out of the 23 office from noon on Monday and Tuesday. I'll be in 24 San Antonio with other officers from NAGRA as well as 25 the association's management company. We'll be 0131 1 finalizing plans for the NAGRA conference scheduled 2 for June 2004 in San Antonio. 3 Also, to let you know, we did get a 4 confirmation from Barry McBee with the Attorney 5 General's Office that he will be joining us at the 6 opening conference, giving some comments to the 7 attendees on the Attorney General's roles on gaming 8 issues in the state of Texas. 9 I'll be happy to answer any questions 10 you may have. 11 CHAIRMAN CLOWE: Thank you, sir. 12 Commissioners, I believe, unless you 13 have any further interest, we're ready to go into 14 executive session. 15 MS. KIPLIN: Mr. Chairman? Mr. 16 Richardson, Jim Richardson, I think, wanted to 17 respond more directly -- 18 CHAIRMAN CLOWE: Oh, he wants to say 19 on the record what he wants to do? 20 MS. KIPLIN: Yes, sir. 21 CHAIRMAN CLOWE: Come forward, Jim. 22 MS. KIPLIN: No. This has to do with 23 the Survey of Organizational Excellence. 24 CHAIRMAN CLOWE: Oh, okay. I 25 misunderstood your note. You wanted to give us some 0132 1 information, then, on that? 2 MR. RICHARDSON: Yes, sir. For the 3 record, name is Jim Richardson. I have had staff 4 pull the requisition on the cost for the survey. And 5 my memory was off by about 137. It was really 963, 6 is what we paid for that. 7 CHAIRMAN CLOWE: It gets more 8 impressive. That's really a bargain. 9 MR. RICHARDSON: Yes, sir, it is. 10 CHAIRMAN CLOWE: That's really 11 something to be able to get a report like that. 12 MS. KIPLIN: It's an interagency 13 contract, is it not? 14 MR. RICHARDSON: Yes. 15 CHAIRMAN CLOWE: All right. At this 16 time I move the Texas Lottery Commission go into 17 executive session to deliberate the duties and 18 evaluation of the Executive Director and/or Deputy 19 Executive Director, Internal Audit Director and 20 Charitable Bingo Operations Director pursuant to 21 Section 551.074 of the Texas Government Code. 22 To deliberate the duties of the 23 General Counsel and Security Director pursuant to 24 Section 551.074 of the Texas Government Code. 25 To receive legal advice regarding 0133 1 pending or contemplated litigation and/or to receive 2 legal advice pursuant to Section 551.071 (1)(A) or 3 (B) of the Texas Government Code and/or to receive 4 legal advice pursuant to Section 551.072 (2) of the 5 Texas Government Code, including but not limited to: 6 Retired Sergeant Majors' Association et al. versus 7 Texas Lottery Commission, et al. 8 Patsy Henry versus Texas Lottery Commission 9 Sandy Surber, et al. versus Gtech Corporation 10 Linda Cloud versus Mike McKinney, et al. 11 Bruce Suza versus Texas Lottery Commission, et al. 12 James T. Jongebloed versus Texas Lottery Commission 13 Employment law, personnel law, procurement and 14 contract law, evidentiary and procedural law, and 15 general government law. 16 Is there a second? 17 COMMISSIONER COX: Second. 18 CHAIRMAN CLOWE: All in favor, please 19 say aye. Opposed, no. The vote is three-zero in 20 favor. 21 The Texas Lottery Commission will go 22 into executive session. The time is 11:35 a.m. 23 Today is January the 30th, 2004. 24 (RECESS.) 25 CHAIRMAN CLOWE: Texas Lottery 0134 1 Commission is out of executive session. The time is 2 12:39 p.m. 3 Is there any action to be taken as a 4 result of the executive session? If not, I believe 5 we have completed the agenda as set forth for today's 6 meeting. 7 Is there any other business to come 8 before the Commission? If not, we are adjourned at 9 12:40 p.m. Thank you all very much. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0135 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter 10 set out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 Witness my hand on this the 16TH day of 16 FEBRUARY, 2004. 17 18 19 BRENDA J. WRIGHT, RPR, 20 Texas CSR No. 1780 Expiration Date: 12-31-04 21 WRIGHT WATSON STEN-TEL Registration No. 225 22 1801 N. Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 JOB NO. 040130BJW 25