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 7   
 8                  TEXAS LOTTERY COMMISSION
 9                           MEETING
10   
11                      JANUARY 13, 2006
12   
13   
14    ******************************************************
15   
16   
17   
18            BE IT REMEMBERED that the Texas Lottery
19   Commission meeting was held on the 13th day of January
20   2006 from 8:30 a.m. to 5:44 p.m., before David Bateman,
21   RPR, CSR in and for the State of Texas, reported by
22   machine shorthand, at the Offices of the Texas Lottery
23   Commission, 611 East 6th Street, Austin, Texas 78701,
24   whereupon the following proceedings were had:
25   
0002
 1                    A P P E A R A N C E S
 2   
 3   Chairman:
 4            Mr. C. Tom Clowe, Jr.
 5   
 6   Commissioners:
 7            Mr. James A. Cox, Jr.
 8   
 9   
10   General Counsel:
11            Ms. Kimberly L. Kiplin
12   
13   Acting Executive Director:
14            Mr. Gary Grief
15   
16   Charitable Bingo Operations Director:
17            Mr. Billy Atkins
18   
19   
20   
21   
22   
23   
24   
25   
0003
 1                          I N D E X
 2                                                    PAGE
 3   Appearances......................................   2
 4   
 5   AGENDA ITEMS
 6   Item Number I....................................   6
         Meeting called to order
 7   
     Item Number II................................... 101
 8       Report, possible discussion and/or
         action on 3rd quarter bingo conductor information
 9   
     Item Number III.................................. 110
10       Consideration of a petition for rulemaking
         to amend 16 TAC 402.600 pertaining to
11       Bingo Reports
12   Item Number IV................................... 118
         Report, possible discussion and/or action on
13       lottery sales and revenue, game performance,
         instant game closures, new game opportunities,
14       including Powerball, and trends
15   Item Number V.................................... 133
         Report, possible discussion and/or action on
16       the agency's financial status
17   Item Number VI................................... 135
         Report, possible discussion and/or action on
18       the selection of jackpot payment option for
         prize winners
19   
     Item Number VII.................................. 156
20       Report, possible discussion and/or action
         on the Mega Millions game and/or contract
21   
     Item Number VIII.................................  15
22       Report, possible discussion and/or action
         on Gtech Corporation
23   
     Item Number IX...................................  54
24       Report, possible discussion and/or action on the
         lottery terminal functionality, including quick
25       pick feature for all games and/or impact to players
0004
 1   Item Number X.................................... 157
         Report, possible discussion and/or action on
 2       The lottery advertising and promotions
 3   Item Number XI................................... 164
         Report, possible discussion and/or action on
 4       HUB and/or minority business participation,
         including the agency's mentor/protege program
 5   
     Item Number XII.................................. 166
 6       Report, possible discussion and/or action on
         the agency's contracts
 7   
     Item Number XIII.................................  34
 8       Report, possible discussion and/or action
         regarding the demographic study of Texas Lottery
 9       players
10   Item Number XIV.................................. 167
         Report, possible discussion and/or action on
11       the 79th Legislature
12   Item Number XV...................................  93
         Consideration of and possible discussion and/or
13       action on external and internal audits and/or
         reviews relating to the Texas Lottery Commission
14       and/or the Internal Audit Department activities
15   Item Number XVI.................................. 168
         Consideration of and possible discussion
16       and/or action on the appointment and
         employment of an executive director
17   
     Item Number XVII........................... 6, 14, 90
18       Executive session
19   Item Number XVIII.......................... 7, 15, 93
         Return to open session
20   
     Item Number XIX.................................. 176
21       Consideration of and possible entry of orders
22   Item Number XX................................... 197
         Report by acting executive director
23   
     Item Number XXI............................  197, 201
24       Report by Charitable Bingo Operations
25   
0005
 1   Item Number XXII................................. 202
         Public comment
 2   
     Item number XXIII................................ 210
 3       Adjournment
 4   
     Reporter's Certificate........................... 219
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0006
 1                      AGENDA ITEM NO. I
 2                 CHAIR CLOWE:  The Texas Lottery
 3   Commission will come to order.  Commissioner Cox is
 4   here.  My name is Tom Clowe.  This is January the 13th,
 5   2005 (sic).  It's 8:30 a.m.
 6                    AGENDA ITEM NO. XVII
 7                 CHAIR CLOWE:  Commissioner Cox, with your
 8   approval, I would like to make a motion that we go into
 9   executive session.
10                 COMMISSIONER COX:  Certainly.
11                 CHAIR CLOWE:  At this time, I move the
12   Texas Lottery Commission go into executive session to
13   deliberate the appointment, employment, evaluation,
14   and/or duties of the executive director, acting
15   executive director, and/or deputy executive director
16   pursuant to Section 551.074 of the Texas Government
17   Code.
18                 Is there a second?
19                 COMMISSIONER COX:  Second.
20                 CHAIR CLOWE:  All in favor, please say
21   "aye."
22                 COMMISSIONER COX:  Aye.
23                 CHAIR CLOWE:  Aye.
24                 The vote is two-zero.
25                 The Texas Lottery Commission will go into
0007
 1   executive session.  The time is 8:31 a.m.  Today is
 2   January the 13th, 2006.
 3                 (Executive Session from
 4                  8:29 a.m. to 10:52 a.m.)
 5                   AGENDA ITEM NO. XVIII
 6                 CHAIR CLOWE:  The Texas Lottery
 7   Commission is out of executive session.  The time is
 8   10:53 a.m.
 9                 Is there any action to be taken as a
10   result of executive session?
11                 COMMISSIONER COX:  Mr. Chairman, I have a
12   motion.
13                 CHAIR CLOWE:  Yes, sir.
14                 COMMISSIONER COX:  I move that Gary
15   Grief, effective January 17, 2006, be returned to his
16   position as deputy director and his annual salary be
17   set at the level it was before he moved into the acting
18   executive director position in January of 2005 but with
19   the four-percent legislative increase so that his
20   annual salary is set at $118,116, which is $9,843
21   monthly.
22                 CHAIR CLOWE:  I second that motion.
23                 All in favor, please say "aye."
24                 COMMISSIONER COX:  Aye.
25                 CHAIR CLOWE:  Aye.
0008
 1                 The vote is two-zero.
 2                 Is there another motion, Commissioner
 3   Cox?
 4                 COMMISSIONER COX:  Yes, I have a further
 5   motion.
 6                 I move that the evaluation of Gary Grief
 7   for the period February 28th, 2005 until January 13,
 8   2006 as acting executive director and as the deputy
 9   director be approved.
10                 CHAIR CLOWE:  I second that motion.
11                 All in favor, please say "aye."
12                 COMMISSIONER COX:  Aye.
13                 CHAIR CLOWE:  Aye.
14                 The vote is two-zero in favor.
15                 Is there a further motion, Commissioner
16   Cox?
17                 COMMISSIONER COX:  Finally, based on his
18   job performance and productivity, I move to approve the
19   promotion for Gary Grief effective Wednesday, January
20   18, 2006.  He would be promoted to a director five,
21   class number 1624, salary group 821, with his annual
22   salary to be set at $125,088.
23                 CHAIR CLOWE:  I second the motion.
24                 All in favor, please say "aye."
25                 Aye.
0009
 1                 COMMISSIONER COX:  Aye.
 2                 CHAIR CLOWE:  The vote is two-zero.
 3                 Now I have one.  I make the motion that
 4   Anthony Sadberry, effective Tuesday, January the 17th,
 5   2006, be named acting executive director of the Texas
 6   Lottery Commission with his annual salary to be set at
 7   $114,996.
 8                 Is there a second?
 9                 COMMISSIONER COX:  Second.
10                 CHAIR CLOWE:  All in favor, please say
11   "aye."
12                 COMMISSIONER COX:  Aye.
13                 CHAIR CLOWE:  Aye.
14                 The vote is two-zero in favor.
15                 I'm going to call on Mr. Sadberry.  But
16   before Commissioner Cox and I do that, I would like to
17   state on the record that we are very pleased to be able
18   to offer this position to Mr. Sadberry.
19                 As many of you know, he served with
20   distinction as a commissioner of this agency for a
21   number of years and during a time that there were a
22   great many problems that this agency dealt with.
23                 I have had the pleasure of serving with
24   Mr. Sadberry as a commissioner.  And I admired his work
25   in that role and appreciated his service to the state
0010
 1   of Texas from a firsthand observation point.
 2                 I would like to say that I approached Mr.
 3   Sadberry and asked him if he would be interested in
 4   this position as acting executive director.
 5                 He responded positively.  The
 6   commissioners have visited with him in executive
 7   session and have now just voted to ask him to assume
 8   this role.
 9                 Mr. Sadberry brings to this position,
10   assuming that he accepts this role, a history, a
11   knowledge and experience of dealing with the lottery
12   that is rich and I think unexcelled.
13                 He has served with distinction on the
14   executive search committee that continues to function.
15   And most recently, he chaired the last meeting and
16   brought us to a point where we reached last month and
17   will continue in the future.  My understanding is that
18   he will no longer serve on that executive search
19   committee upon taking up these duties.
20                 Now Gary Grief was limited, because he is
21   an employee of this agency, to a term of six months as
22   acting executive director.  Because Mr. Sadberry was
23   not an employee of this agency, if he accepts this
24   role, he will not be limited to six months.
25                 That's a question that the commissioners
0011
 1   would like to answer before it is asked.  At the same
 2   time, I want to state that the search for the executive
 3   director continues.  We expect to hear from Diane
 4   Morris shortly with a report on those activities.  And
 5   she'll bring us up to date on the level of activity
 6   there.
 7                 Having said that, do you have anything to
 8   add, Commissioner Cox?
 9                 COMMISSIONER COX:  No, sir.  I do not.
10                 CHAIR CLOWE:  Mr. Sadberry, are you here?
11                 MR. SADBERRY:  I am, Chairman.
12                 CHAIR CLOWE:  As the man who hopefully
13   came to work on Friday the 13th -- really it will be
14   the 17th -- I'd like to ask you if you would accept
15   this position and give us any remarks that you may
16   have.
17                 MR. SADBERRY:  Chairman Clowe and
18   Commissioner Cox, I -- after -- Chairman Clowe and
19   Commissioner Cox, after due deliberation that has gone
20   on for some time and our discussion this morning, I do
21   gladly and willingly accept this position on the terms
22   in which you have laid out in your motion, that is as
23   acting director, executive director, as your search
24   committee, in my absence now, continues to function in
25   the process that you set in motion to look for an
0012
 1   executive director to serve this agency.
 2                 And you correctly state that I was
 3   requested to consider it.  I am honored by that
 4   request.  I'm honored by the confidence you have
 5   expressed in me in your motion and your vote this
 6   morning.
 7                 You're correct.  I sometimes try to add
 8   it up.  I believe -- the record will certainly show,
 9   but I believe it was some eight years or thereabouts
10   that I served as a commissioner.  I was one of the
11   initial three commissioners appointed in 1993 when this
12   agency began its initiation as an independent and new
13   agency in the state of Texas.
14                 Every day since that time and up to this
15   time, including the time that I was away from the
16   agency, I've had a strong feeling for this agency, for
17   the -- and understanding of the very important role
18   that it serves in this state and that utmost we all
19   must realize and appreciate is that we serve the state
20   of Texas and the people of Texas.
21                 And that's where, in coming to this
22   position, I acknowledge and accept the responsibility
23   of doing that and bringing to this effort the best that
24   I can bring and offer to this agency.
25                 As you know and as we've discussed, my
0013
 1   philosophy is a team approach.  I think the most can be
 2   gained from that by approaching leadership and
 3   functioning of an agency in that regard.
 4                 So I look forward to working with the
 5   leadership, management, administrators and staff of
 6   this agency and with you, as commissioners, and with
 7   the leadership of our state.  I look forward to it.
 8                 I look forward to the -- the tasks and
 9   responsibility and challenges and the opportunities
10   that will be brought by this effort.  I look forward to
11   going to work and working each day to reach our goals
12   to make this agency continue in the excellence which I
13   believe has been achieved.
14                 Thank you for your services,
15   Commissioners.  I understand what that entails and
16   appreciate where you've brought this agency from the
17   point at which I left it as commissioner and I join it
18   again at a different capacity equal of importance and I
19   very much look forward to it.
20                 So again, I accept.  And thank you for
21   the opportunity.
22                 CHAIR CLOWE:  Thank you, sir.
23                 COMMISSIONER COX:  Thank you.
24                 CHAIR CLOWE:  Anything further,
25   Commissioner?
0014
 1                 COMMISSIONER COX:  No, sir.
 2                 CHAIR CLOWE:  We will give Mr. Sadberry
 3   an opportunity to speak with those of you who are in
 4   the room that want to visit with him.
 5                 But in regard to additional business,
 6   Commissioner Cox, with your approval, I'd like to make
 7   a motion that we go back into executive session.
 8                 COMMISSIONER COX:  Absolutely.
 9                   AGENDA ITEM NO. XVII
10                 CHAIR CLOWE:  At this time, I move the
11   Texas Lottery Commission go into executive session to
12   receive legal advice to -- pursuant to Section
13   551.071(2) of the Texas Government Code regarding the
14   lottery operator contract.
15                 Is there a second?
16                 COMMISSIONER COX:  Second.
17                 CHAIR CLOWE:  All in favor, please say
18   "aye."
19                 COMMISSIONER COX:  Aye.
20                 CHAIR CLOWE:  Aye.
21                 The vote is two-zero.
22                 The Texas Lottery Commission will go into
23   the executive session.  The time is 11:02 a.m.  The
24   date is January the 13th, 2006.
25                 (Executive Session from
0015
 1                  11:02 a.m. to 11:59 a.m.)
 2                   AGENDA ITEM NO. XVIII
 3                 CHAIR CLOWE:  The Texas Lottery
 4   Commission is out of executive session.  The time is 12
 5   noon.  Is there any action to be taken as a result of
 6   executive session?
 7                    AGENDA ITEM NO. VIII
 8                 CHAIR CLOWE:  And if not, let's move on
 9   to item eight, report and possible discussion and/or
10   action on Gtech Corporation.
11                 Mr. Grief?
12                 MR. GRIEF:  Commissioners, there have
13   been additional developments regarding the potential
14   stock ownership change for Gtech Corporation that's
15   been mentioned previously.
16                 On January 10th, Gtech issued a press
17   release in which they announced that Gtech and
18   Lottomatica, an Italian-based company, entered into an
19   agreement for Lottomatica to acquire all the
20   outstanding shares of Gtech stock for 35 dollars per
21   share or approximately 4.8 billion dollars.
22                 That press release also said that the
23   transaction is expected to be completed by mid-2006.
24   And the press release went on to say that Lottomatica
25   is headquartered in Rome, Italy, operates the Italian
0016
 1   Lotto, and is a market leader in the Italian gaming
 2   industry.
 3                 Our understanding is that Lottomatica is
 4   controlled by De Agostini, an Italian diversified
 5   industrial and financial holding group with significant
 6   international operations and De Agostini controls 58
 7   percent of the Lottomatica shares.  My understanding
 8   from Gtech is that Lottomatica shares are traded on the
 9   Milan Stock Exchange.
10                 As you know, with the approval and
11   assistance from the Office of Attorney General, the
12   Lottery Commission previously issued a request for
13   proposals for outside counsel services related to this
14   transaction.
15                 And this RFP covers a broad range of
16   legal services related to assisting the commission and
17   determining the appropriateness of the transaction and
18   the suitability of the new shareholders.
19                 An apparent successful proposer, Graves
20   Dougherty, a Texas-based law firm, has been announced.
21   Contract negotiations ensued shortly thereafter and the
22   contract has been executed by both parties.  My
23   understanding is that that contract has now been
24   forwarded over to the Office of Attorney General for
25   their final approval.
0017
 1                 We do have representatives from Gtech
 2   with us in the audience today.  And in the event that
 3   you have additional questions of them and I'm sure
 4   that, if I've said anything inaccurate, they would be
 5   happy to correct me.
 6                 CHAIR CLOWE:  Thank you, Gary.
 7   Gentlemen, will you come forward, please?  I want to
 8   ask you to identify yourselves for the record.
 9                 But before you do that and the commission
10   hears from you, I spoke to you this morning when we
11   began this meeting and informed you that we would call
12   on you as early as possible.  And in light of
13   misleading you, I need to offer you an apology.
14                 We understand that you are busy
15   executives and you have commitments.  And we are
16   appreciative that you would come to Austin and appear
17   before us.  And at the same time, we are sorry that we
18   have been unable to call on you before this hour of the
19   day.
20                 We've had a number of matters that have
21   been pending before this commission for some time.  And
22   it was absolutely necessary to deal with those and,
23   therefore, the delay in coming to this item of the
24   agenda.  But I want you to understand it was clearly
25   not our intention to have you sit here and wait through
0018
 1   the morning.  So we apologize to you for that.
 2                 And now you have our full attention, so
 3   if you will identify yourselves and tell us what you've
 4   come to say.
 5                 MR. SWEITZER:  Thank you very much, Mr.
 6   Chairman.  There we go.  Thank you.
 7                 My name is Donald R. Sweitzer.  I am the
 8   senior vice-president of Global Business Development
 9   and Public Affairs for Gtech Holdings.  Mr. DeSocio
10   will speak in a minute.  This is Walter G. DeSocio, who
11   is senior vice-president, general counsel and corporate
12   secretary of -- of -- of Gtech.
13                 We're not offended at all that we've --
14   that we've had to wait a little while.  Your work is as
15   important as ours.  And we actually very much
16   appreciate the opportunity to come here so soon after
17   our announcement.  And we appreciate your invitation to
18   be here today to answer any questions that you may
19   have.
20                 We -- we have a great respect and a long
21   relationship with this lottery.  The -- the Texas
22   lottery -- we talk about the Texas lottery model around
23   the world, frankly.  When we -- in my own
24   responsibilities, I spend a lot of my time outside of
25   the country talking to countries and states and
0019
 1   jurisdictions that are thinking of putting in a
 2   lottery, whether it be Sri Lanka or Thailand or Russia.
 3                 And I don't know whether you-all know how
 4   much the Texas lottery is invoked around the world
 5   because when we are advising governments of best
 6   practices and things along those lines as to how they
 7   should set up a lottery, the -- very early in that
 8   conversation is a discussion of the Texas model because
 9   the -- the innovative way in which you-all have run
10   this lottery over the years is something that is
11   pointed to around the world as a model of best practice
12   that ought to be the model for any kind of a new
13   operation.
14                 So we are pleased that we are your vendor
15   and we intend to continue this relationship.  We -- we
16   don't have any formal statement to make because I think
17   what we'd like to do is respond to -- to your
18   questions.  And Walter may say a few things when I'm
19   done.
20                 But the main message that we're here to
21   say to you is that this -- this acquisition is one that
22   is basically a vertical acquisition.  This is not as if
23   one competitor is buying another.  And the classic
24   thing that happens in those kinds of situations is
25   there's a lot of change, there's a lot of duplicate
0020
 1   work and so on and so forth.
 2                 Generally speaking, there is turmoil in a
 3   lot of the change.  As Gary said, this is the --
 4   Lottomatica is the operator of the Italian Lottery.
 5                 They are more like you than they are like
 6   us.  And therefore, the manner in which we will
 7   continue to operate the Gtech Corporation will be very
 8   much as you understand it now.
 9                 We will not be losing our identity.  The
10   Gtech Corporation will still be headquartered in United
11   States, in Rhode Island.  We're building a new building
12   in downtown Providence right now which will be open
13   in -- in November.  And the manner in which we serve
14   our clients will be very much along the lines of how it
15   is now.
16                 The personnel, as -- as you probably read
17   in the announcements, Bruce Turner, our CEO, who has
18   appeared before you before, will be -- will continue to
19   be the CEO of Gtech and he will also be the CEO of the
20   new entity, Lottomatica.
21                 The -- one of the things that the
22   acquirers have asked all of us is for the entire
23   American team, senior management team, to manage the
24   combined operations.  And so, therefore, there will be
25   Lottomatica Holdings Company of which Bruce will be the
0021
 1   CEO and there will be two units in that company,
 2   Lottomatica and Gtech.
 3                 And Bruce will continue to be the CEO of
 4   Gtech.  All of us will continue as officers.  There
 5   will be -- there will be literally no change in the
 6   personnel that -- that serve you.
 7                 And we think there will be many strengths
 8   after this acquisition is completed, as far as being
 9   able to strengthen us even further to allow us to do
10   the things that hopefully we are chosen for, and that
11   is the research and development that we do to allow us
12   to continue to be the market leader.
13                 And so our basic message to you -- and
14   we'll respond to any particular questions you have.
15   And I know Walter may have some exchanges that -- as
16   far as the description of how you intend to examine
17   this -- this -- this acquisition which, of course,
18   you -- you should do.
19                 Our main message is that this will not be
20   turmoil or major change that you -- the -- the way that
21   you know that we operate now will change very little.
22   We think it strengthens us both financially and as a
23   market leader.
24                 And we look forward to completing the --
25   the -- all -- all that must go into that and being open
0022
 1   all through this process to any inquiries or
 2   investigations or research that you need to do.  That's
 3   the basic message.
 4                 And I know Walter wants to say a few
 5   words.  And then we'll be happy to respond to any
 6   questions that you may have.
 7                 CHAIR CLOWE:  Thank you.
 8                 MR. DeSOCIO:  Thank you very much.  I
 9   support everything else that Don said and add that,
10   over the coming months -- and this will be a month -- a
11   multimonth process as we work through all the
12   conditions necessary to consummate this transaction.
13                 We intend to work fully and cooperatively
14   with all of our customers and that obviously includes
15   the Texas Lottery.  So I want to make it clear that we
16   are going to be at your disposal and at the disposal of
17   other customers to provide whatever information it is
18   in order for you to carry out what you believe to be
19   your duties to the citizens of your state.
20                 The transaction, as we view it, is really
21   one very much of continuity.  As Don said, we are going
22   to be keeping things in place.  There were -- there was
23   a time when we talked to several members of the staff
24   as a way of updating them about a transaction that our
25   board had been considering for many, many months.
0023
 1                 And during the course of that
 2   transaction, we had some discussions about, frankly, a
 3   transaction that looked very different from the one
 4   that we announced earlier this week and that, in my
 5   view, might have given one reason to look at the
 6   delivery and financial capabilities of the resulting
 7   company.
 8                 We believe that the acquisition
 9   transaction announcement that was described very well
10   by Gary that was announced earlier this week results in
11   a combined company that's very healthy, that has --
12   will have an investment-grade rating and we believe
13   will have the delivery capabilities to provide you with
14   what you expect from us under the contract and even
15   beyond what we deliver under the contract.
16                 So with that, we'd be happy to either
17   take questions now or take away things that you'd like
18   us to do later and come back and work with your staff
19   on.
20                 CHAIR CLOWE:  Well, gentlemen, I want to
21   thank you again for being here today and tell you that
22   we appreciate the timeliness of your visit with us this
23   morning.  I think we are fortunate that we had this
24   meeting scheduled and had you on the agenda.  And we're
25   appreciative of you coming from Rhode Island and being
0024
 1   here with us.
 2                 I'm also appreciative of your kind
 3   remarks about the Texas model.  There are some that
 4   think we're somewhat contentious and hard to do
 5   business with.  My view is that the focus of this
 6   agency is to protect the people of Texas and to make
 7   certain that the players are treated with honesty and
 8   fairness and we -- pretty stringent on that
 9   requirement.
10                 I've been both the acquirer and the
11   acquiree in these kinds of deals.  And, you know, you
12   really don't believe there's going to be any change,
13   you better look at that one again because there always
14   is change.
15                 MR. SWEITZER:  Well, we -- we know that.
16   We're speaking, of course, in the manner in which we
17   run the operation.  We -- we have also been acquirers.
18   And in this company, we haven't been acquired in our
19   experience, anyway.
20                 But no, we fully understand there --
21   there will be cultural differences and changes and just
22   different personalities.  The advantage that we have
23   here, though -- and frankly, we didn't have it in the
24   original -- as Walter mentioned, the original proposed
25   deal that was negotiated for some months and then
0025
 1   folks -- and then it moved on was with people who we
 2   didn't personally know but we came to know.
 3                 We know the people at Lottomatica because
 4   we're in the business and because we also operate in
 5   Italy.  We have come over the years to know most of the
 6   people that we're dealing with.  And that gives you a
 7   little bit more comfort.
 8                 But we're also big boys and we know that
 9   there will be different folks and different ideas and
10   certainly we know that there will be some changes and
11   perhaps even a little head-knocking from time to time.
12   But that's -- that's human nature and life.
13                 CHAIR CLOWE:  Well, you know, what brings
14   that about is you take their money.  And when you take
15   their money and they own you, then they're going to
16   call the tune.  And I think this deal is different than
17   the first deal that we heard about.  And I think that
18   represents just how quickly change can come about.
19                 And these deals are interesting.  And
20   certainly a deal that involves the acquisition of a
21   domestic United States corporation by a foreign
22   corporation which is traded on a foreign exchange where
23   58 percent is controlled by private entity is a complex
24   and a very interesting business arrangement.
25                 And our interest, as I think is justified
0026
 1   by our contract, is a determination of the suitability
 2   of whoever the survivor in this transaction might be
 3   regarding assuming the role of the operator to the
 4   Texas Lottery.  And that's our interest.
 5                 We certainly intend to, in an obligation
 6   to the state, to look into this matter.  And I would
 7   ask you the questions of:  Do you intend to be
 8   supportive to that effort insofar as, specifically
 9   comes to mind, the retention of outside firms, attorney
10   and the outside firm of investigators and are you open
11   to the posting of monies that would enable those
12   activities to go on and be funded by Gtech?
13                 MR. DeSOCIO:  The answer to that is very
14   clearly yes.  And we've -- I've had some discussions
15   with your general counsel about the mechanics of
16   posting appropriate funds that will allow you to begin
17   to do your work.
18                 But clearly that is -- that's -- that's
19   beyond doubt that we'll -- you know, we want to
20   facilitate what process you feel you need to undertake.
21   And we're at your disposal in terms of financial
22   support to get it done and in terms of informational
23   support to help your advisers do their job.
24                 CHAIR CLOWE:  And in regard to that,
25   there are categories of states that you are the
0027
 1   operator for.  And as I understand it, there's a
 2   condition of the deal going forward that 87 percent of
 3   those entities in some form must give some sort of an
 4   assurance -- and I'm not clear on the definition of
 5   that and I don't want to be pinned down to stating what
 6   specifically that is because I don't know.
 7                 But my question doesn't go to that.  It
 8   goes more to your attitude towards those entities, the
 9   states where you are the lottery operator, working
10   together and being a single entity in this
11   investigative and determination of their feelings about
12   suitability.
13                 What's your attitude about that at this
14   point in time?
15                 MR. SWEITZER:  I think our attitude is --
16   with all of those other entities as -- is the same as
17   what we're saying here today.  We -- we look forward to
18   and will cooperate with and encourage a thorough scrub
19   by all of these states into this transaction.
20                 So I might also add that Lottomatica is
21   not an unknown entity in this industry in the United
22   States.  As you may know, Lottomatica actually owned a
23   significant percentage of one of our competitors up
24   until a couple of years ago and, therefore, has been
25   through many of the processes that a company must go
0028
 1   through in various jurisdictions in the United States.
 2                 So they are not an unknown entity, I
 3   think, even to the Texas Lottery.  But we look forward
 4   to a thorough look into the and monitoring of the
 5   transaction as it goes forward by all of the entities
 6   that we serve.
 7                 CHAIR CLOWE:  Well, I think then what I'm
 8   hearing you say is you're open to that and you don't
 9   have a plan working right now to either work with
10   individual states or try to bring the states together
11   and have them act in consort.
12                 Is that correct?
13                 MR. DeSOCIO:  I think that's largely
14   correct.  As you probably know, when the first
15   iteration of the transaction was under discussion and
16   we had -- that is Gtech and its representatives had
17   discussions with, I will say, 20 to 22 or 3, maybe
18   virtually all the domestic lotteries for which it
19   provides services, we -- we received a letter from the
20   New York General Counsel's Office advising us that it
21   had -- it had made an arrangement.
22                 And we were taking the letter at face
23   value.  It had made an arrangement to pool resources so
24   that the various domestic lotteries can take advantage
25   of efficiencies and understanding what, at that time,
0029
 1   was an exceedingly complex transaction and that the
 2   decision-making would certainly be done by each
 3   domestic jurisdiction but the pooling of resources
 4   would be an efficient way of having experts hired and
 5   information obtained about the transaction.  This is, I
 6   would submit, a different type of transaction.
 7                 And at the end of the day, we operate by
 8   the customer rules principle.  And if states have
 9   specific question with regard to their lottery
10   relationship with us, we intend to deal with those
11   bilaterally.
12                 And I would -- I would suspect that, now
13   that the transaction has become publicly-known, that
14   many lotteries are now beginning to consider what is
15   the appropriate level of resource commitment and
16   analytical commitment to a transaction that looks very
17   different than the one that they were preliminarily
18   advised about a couple months ago.
19                 CHAIR CLOWE:  Well, and I think there's
20   yet to be more information developed on the answer to
21   my question regarding that issue.  And you've taken
22   your answer as far as I believe you have it at this
23   point.
24                 MR. DeSOCIO:  That's correct.
25                 CHAIR CLOWE:  In regard to the
0030
 1   transaction that you have made at this point in time
 2   that I read about, how far to the controlling entity --
 3   and that would be the majority stockholder -- do you
 4   anticipate the willingness to disclose information,
 5   insofar as suitability, is going to be available to
 6   ourselves, for example?
 7                 MR. DeSOCIO:  Well, I can't speak for
 8   them.  But I think I can give you a pretty -- a pretty
 9   informed and educated answer.
10                 I think De Agostini, the controlling
11   shareholder, is committed to providing information to
12   the -- the degree necessary on its operations and on
13   its directors and stockholders in order to provide
14   satisfaction both to the lottery customers and to the
15   gaming customers, gaming jurisdictions, that will have
16   similar types of investigatory exercises.
17                 As Don stated earlier, we understand that
18   they have been through the process before in connection
19   with their Scientific Games' investment.  There were
20   both lottery and gaming licenses issued and
21   investigations conducted.  So we feel very, very
22   confident.
23                 And, in fact, I'm sure -- I wasn't part
24   of the board process, but I think I can probably speak
25   for the board in saying that one of the considerations
0031
 1   that would have been important to the Gtech board would
 2   be to understand that the buyer has a commitment to do
 3   what's necessary to consummate the transaction.
 4                 Otherwise, it wouldn't be, in my view, a
 5   deal that would be as -- as positive to the -- for the
 6   Gtech shareholders.  So ascertaining that level of
 7   interest and commitment, I think, was a gut-check
 8   decision by our board.
 9                 Certainly the management members of Gtech
10   feel very confident about the commitment.
11   Historically, in the last couple of years, they have
12   evidence of the commitment to submit themselves to the
13   appropriate level of investigation in different
14   jurisdictions.
15                 So I believe you'll see cooperation to
16   the extent that Texas law or California law or New York
17   law or Canadian law requires.
18                 CHAIR CLOWE:  I think that you've
19   answered preliminarily the issues that I have in my
20   mind.  I think that clearly we view this as a major
21   change in your company.  It's a change of control as I
22   see it.
23                 And I think, as I've said before, it is
24   our responsibility to determine that there is
25   suitability and that's our responsibility.  We will
0032
 1   need to work closely with you if you want some kind of
 2   a response from us and I -- I couldn't begin to
 3   describe what that's going to be until we get further
 4   into it.
 5                 But again, we appreciate your being here
 6   and giving us this initial indication of your
 7   willingness to work with us in dealing with us.
 8   Commissioner Cox?
 9                 COMMISSIONER COX:  (Shaking head)
10                 CHAIR CLOWE:  Anything --
11                 MS. KIPLIN:  May I -- just to be clear in
12   my mind, may I ask a question of the general counsel?
13                 CHAIR CLOWE:  Sure.
14                 MS. KIPLIN:  I just want to make sure
15   that I'm clear.  And I appreciate the discussions we've
16   had off the record.  But I want to make sure that Gtech
17   is committing to paying the costs of whatever we need
18   to do, including the cost of our outside counsel that
19   we've retained and any outside investigators, and you
20   will post funds with us from which we can draw to pay
21   for those costs and --
22                 MR. DeSOCIO:  That --
23                 MS. KIPLIN:  -- will replenish those
24   funds as -- as we need, that we need to.
25                 MR. DeSOCIO:  That is our agreement, yes.
0033
 1                 MS. KIPLIN:  Thank you.
 2                 CHAIR CLOWE:  That's what I thought he
 3   said.  Feel better now?
 4                 MS. KIPLIN:  I do.
 5                 CHAIR CLOWE:  Anything further,
 6   gentlemen?
 7                 MR. SWEITZER:  I think the only thing I
 8   would add in closing, Mr. Chairman, if you'd allow me
 9   to, is to reiterate our commitment to the state of
10   Texas.  Another point that I would make that I think
11   demonstrates it and will continue in the -- in the new
12   arrangement is what we've done here in Austin, Texas.
13                 We are a worldwide company.  We have
14   three technology hubs in the world.  And, as you know,
15   a couple of years ago we chose one of those technology
16   hubs to be Austin, Texas.  Austin, Texas, West
17   Greenwich, Rhode Island and Warsaw, Poland.
18                 And we are very proud and very confident
19   of what we've done here in Austin in not only serving
20   the Texas Lottery from this technology center but also
21   other states in the United States and some foreign
22   lotteries that are served from a facility right up the
23   street.
24                 And so I think that further demonstrates
25   our commitment to this state, which will continue in
0034
 1   whatever the new arrangement is going forward.  We are
 2   proud of our association with Texas and very pleased to
 3   be here today.
 4                 CHAIR CLOWE:  Thank you very much.  Thank
 5   you both.
 6                 MR. DeSOCIO:  Thank you.
 7                 CHAIR CLOWE:  Mr. Fernandez, are your
 8   folks still here?
 9                 MR. FERNANDEZ:  Yes, sir.  They're still
10   here.
11                 CHAIR CLOWE:  Commissioner, with your
12   approval, we have some outsiders that are here that
13   want to cover an item and then we'll go into executive
14   session.
15                 Mike, what -- what item is yours on our
16   agenda?
17                 MR. FERNANDEZ:  It's item number 13, Mr.
18   Chairman.
19                   AGENDA ITEM NO. XIII
20                 CHAIR CLOWE:  Let's go to item number 13,
21   report, possible discussion and/or action regarding the
22   demographic study of Texas lottery players.
23                 And gentlemen, we appreciate you-all
24   being here and we apologize for the lateness in asking
25   you to come forward and appear before us.
0035
 1                 MR. FERNANDEZ:  Good afternoon, Mr.
 2   Chairman and Commissioner Cox.  As you know, we have
 3   entered into an interagency agreement with the
 4   University of Texas Arlington for the conduct of a
 5   demographic study of lottery players.
 6                 With me this afternoon I have Dr. Richard
 7   Cole, who's the dean and professor of the School of
 8   Urban and Public Affairs from the University of Texas
 9   Arlington.  I believe with him he has a research
10   associate, Robert Wilkins.  I also have with us today
11   Dr. Sizemore, our -- our internal researcher.
12                 And with that, I would ask Dr. Cole to
13   present their findings.
14                 DR. COLE:  Thank you very much.  I
15   believe I can go through this quickly.  There's a lot
16   of data and information in the report and we're not
17   going to go through page by page.  But we felt we would
18   go over the highlights with you and respond to
19   questions as we can.
20                 As mentioned, my name is Richard Cole.
21   And I'm dean of the School of Urban and Public Affairs
22   at the University of Texas at Arlington.  And with me
23   today is Bob Wilkins, a research associate at the
24   school who's worked with me on this project.
25                 CHAIR CLOWE:  And do you get to bask in
0036
 1   the glory of the Rose Bowl?  Are they sharing that with
 2   you guys or not?
 3                 DR. COLE:  Absolutely.  Well, we bask in
 4   the glory for sure.
 5                 CHAIR CLOWE:  Okay.
 6                 DR. COLE:  As much as we can.
 7                 We both want to say that we very much
 8   appreciate the opportunity to have worked with the
 9   commission on this effort.  We know it's an important
10   project for the commission and for the state of Texas
11   and it's an honor of us to have been -- for us to have
12   been part of it this year.  And we thank you very much
13   for that.
14                 Before we look at the results of this
15   year's demographic study, I want to briefly review our
16   research design and discuss a few points related to
17   methodology and research design.
18                 The telephone survey was conducted during
19   the months of October and November of 2005 using a
20   method known as random-digit dialing, a process that
21   ensures that all households in Texas with listed and
22   unlisted phone numbers have an equal opportunity of
23   being included in the sample.
24                 The survey was available in both English
25   and Spanish and Spanish-speaking interviewers were
0037
 1   available for those who wanted it.  We completed
 2   interviews with 17 hundred Texas residents age 18 or
 3   above, a sample size yielding a margin of error of plus
 4   or minus 2.4 percent.
 5                 Throughout this report, we report
 6   statistical tests known as tests of statistical
 7   significance.  Let me briefly review the purpose of
 8   these tests.
 9                 Whenever we have information collected
10   from a sample as compared with information collected
11   from the entire population, there's a chance that
12   relationships we observe in the sample data may not
13   actually accurately reflect true relationships in the
14   population.
15                 You can never entirely eliminate the risk
16   of making mistakes, but tests of statistical
17   significance tell us the probability of making an error
18   in concluding that a relationship found in the sample
19   actually does represent a relationship exists in the
20   population.
21                 When a relationship found in the sample
22   is reported to be significant -- and let's say the .05
23   level, this means that in only five out of one hundred
24   samples of this size would we find a relationship this
25   large if, in fact, no relationship exists in the
0038
 1   population.
 2                 When report -- when we report a
 3   relationship to be significant at the .001 level, this
 4   means that in only one out of a thousand samples would
 5   we find a relationship this large if, in fact, no
 6   relationship exists in the population.
 7                 If a relationship is reported as not
 8   significant, this means that the relationship in the
 9   sample is too small to conclude with an acceptable
10   degree of confidence that the relationship actually
11   exists in the population.
12                 And so tests of significance can be
13   thought of as measures of confidence.  They tell us how
14   confident we can be that relationships found in our
15   sample actually do reflect relationships existing in
16   the population.
17                 When we are confident that a relationship
18   exists in the population, we say that relationship is
19   statistically significant.  When we are not confident,
20   we say the relationship is not statistically
21   significant.
22                 Another issue deals with the use of
23   unweighted data.  Our study, like all previous studies,
24   uses data in their unweighted format.  This means that
25   the data, after having been collected, are not adjusted
0039
 1   to match specific proportional demographics of the
 2   population.
 3                 Reporting our results this way permits
 4   direct comparison with previous studies and does not
 5   affect group-by-group comparisons such as comparing
 6   participation rates of men with women, Hispanics with
 7   non-Hispanics, lower income with higher income
 8   individuals, and so forth.
 9                 And for the most part, these are the type
10   of comparisons we report on in this study.  It should
11   be noted, though, that projections of sample results to
12   the population should be interpreted with appropriate
13   caution when using unweighted data.
14                 And a final methodological issue concerns
15   extreme cases.  A few respondents report
16   extraordinarily large amounts of money spent on the
17   various lottery games.  In some cases, these extreme
18   cases skew the results so much so that the reporting of
19   the average or mean amount spent on any game is
20   misleading.
21                 In order to control for this, we
22   typically report the median as opposed to the mean
23   amount spent.  The median is that number that divides
24   the distribution in half so that 50 percent of
25   respondents report spending that amount or more and 50
0040
 1   percent report spending that amount or less.  As such,
 2   the median serves as a correction for extreme cases.
 3                 So before we report the results, I would
 4   pause if there are questions on any of those issues.
 5                 COMMISSIONER COX:  I just have one
 6   question on the sample selection basis.
 7                 DR. COLE:  Yes.
 8                 COMMISSIONER COX:  You used land line
 9   telephone --
10                 DR. COLE:  Yes.
11                 COMMISSIONER COX:  -- numbers?
12                 DR. COLE:  Yes.
13                 COMMISSIONER COX:  And I assume you got
14   from the various phone companies the population of this
15   block of numbers that you used just like another
16   business.
17                 DR. COLE:  That's -- that's essentially
18   true.  And then from that block, a randomization
19   process is used to randomly select the phone numbers.
20                 COMMISSIONER COX:  Okay.  So from that,
21   you got listed and unlisted numbers.
22                 DR. COLE:  That's true.
23                 COMMISSIONER COX:  What did you do with
24   the business numbers that you had?
25                 DR. COLE:  The business numbers are
0041
 1   deleted from the sample --
 2                 COMMISSIONER COX:  So they're just
 3   residential numbers?
 4                 DR. COLE:  Right.
 5                 COMMISSIONER COX:  And do you have any
 6   concern about the fact that, as I read, a growing
 7   number of people don't even have land line phones, they
 8   have cell phone?
 9                 DR. COLE:  Yeah, it is.  Cell phones are
10   eliminated from this sample as they, by law, must be.
11   But it's -- it's an increasing concern for survey
12   research in general, the number of people in the
13   population who are using cell phones as opposed to land
14   line phones.
15                 Data that I've seen indicated that it's
16   still a reasonably small percent, maybe three, four,
17   five percent.  But it's an increasing concern.  There's
18   no -- there's no question about it.
19                 I think that most studies have
20   demonstrated that, at this point, it does not seem to
21   make a difference.  In other words, people who use cell
22   phones are not considerably different from the rest of
23   the population.  So that bias tends to wash out.
24                 But I think that anyone involved in
25   survey research knows that that's an increasing issue
0042
 1   that will have to be dealt with at some point.
 2                 COMMISSIONER COX:  And how large do you
 3   think the economic strata you're missing at the bottom
 4   of the income array because they just can't afford a
 5   telephone?
 6                 DR. COLE:  I -- I don't think it's very
 7   significant.  We -- we have looked and we'll look in
 8   just a second, a comparison of the income demographics
 9   of the sample with the population of Texas.  And it's
10   very, very close.
11                 COMMISSIONER COX:  Thank you, Mr.
12   Chairman.
13                 CHAIR CLOWE:  Thank you.
14                 DR. COLE:  Okay.  Bob -- Bob, let's go to
15   the first chart.
16                 The first chart on the board, in fact,
17   does look at the characteristics of the sample.  And I
18   will not pause long on this except to note that, in
19   many of these categories, we were very close to the
20   population of the state of Texas.
21                 The income category, for example, you see
22   the percentages that fall in our sample.  I'll just
23   quickly read from top to bottom the census portion in
24   those same categories.  Under 20 thousand, it's 24
25   percent.  Then on up, it's 14 percent, 13, 10, 9, 9,
0043
 1   and 11.  So we're very close there.
 2                 We're close on the race variable, at
 3   least in terms of white and African-American or blacks.
 4   We're very close on the gender variable.  And we're
 5   reasonably close on the age variable.
 6                 The two variables where the sample
 7   characteristics deviate from the statewide numbers
 8   significantly are -- is in the area of education, where
 9   we have -- where in the state of Texas, there are about
10   20 percent who report less than high school and we have
11   about 10 percent.
12                 At -- we're close on the other high --
13   education factors and also Hispanic origin, where we
14   report about 20 percent whereas the adult Hispanic
15   population in the state of Texas, according to the
16   census, is about 28 percent.
17                 So those two factors are off a little bit
18   from the population.  The rest are very close.  I don't
19   think that any of them are off enough to affect the
20   analysis.  But that's the results that we have.
21                 Bob, let's go then to the next chart.
22                 The next chart looks at the percent of
23   the population saying that they have played any of the
24   lottery games from the initiation of the lottery in
25   1993 until the present.  The top bar -- tool 6, of
0044
 1   course -- represents the results of our survey.  All
 2   the other bars represent the results of previous
 3   surveys.
 4                 And you can see that, in general, there's
 5   been a decline in participation over the years up until
 6   perhaps this particular year, 2005, where we show this
 7   year roughly 51 percent say they played any of the
 8   lottery games in comparison to 47 percent last year.
 9                 So for the first time in a long time, it
10   looks like the percent saying they played at least has
11   not declined.  And I think we might conclude perhaps
12   that the proportion playing has stabilized at about
13   50-percent level.
14                 Bob, let's go to the next chart.
15                 The next table looks at the demographic
16   characteristics of players and nonplayers and compares
17   them on a number of demographic characteristics.  You
18   can see those on the board.  We have income, education,
19   race, Hispanic origin, gender, age and employment
20   status.
21                 And there are some variances in all of
22   those categories reported.  However, the only three
23   that are statistically significant and, therefore, for
24   which we have confidence that these represent the
25   population, are:
0045
 1                 Gender, where males report playing more
 2   heavily than do females by a small -- reasonably small
 3   percent; education, where there's a increase in play up
 4   until the some college/no degree category, where about
 5   56.8 percent say they play, and decline after that; and
 6   finally, employment status, where those employed
 7   indicate that they play at significantly higher rates
 8   than those unemployed.
 9                 None of the other characteristics that we
10   looked at distinguished significantly between players
11   and nonplayers this year.
12                 Bob, let's go to the next chart, please.
13                 The next table, which in the report is
14   presented as table three, is a complex table with lots
15   of information, as you see.  It's so large that we have
16   to put it in two -- two parts on our -- on the board.
17                 But what we have here is, for every
18   lottery game, we've indicated the number and the sample
19   who say they play, the percent who say they play, the
20   average number of times played per week, the average
21   number of times played per month, the average number of
22   times played per year, the average spent per play,
23   average spent per month as a mean, and the average
24   spent per month presented as a median.
25                 I won't go through all of that with you
0046
 1   except to just make a couple of highlight points.
 2                 Bob, go to the next chart, please.
 3                 First of all, the most popular game again
 4   this year is indicated to be Lotto Texas, where 84
 5   percent of our sample say they play that or say they
 6   played that within the last year.  The least popular is
 7   Texas Two Step, played by only 15 percent of the
 8   population.
 9                 And in terms of frequency of play, the
10   various scratch-off games tended to be played more
11   often than others.  And I'll not report any of the
12   other details of that except to say that this parallels
13   very closely with the same results found in last --
14   last year's study, 2005.
15                 As an example, that year 80 percent said
16   they had played Lotto Texas.  We found 84 percent.  So
17   it's -- the percentages in each of those categories are
18   roughly parallel to that.
19                 Then we conclude the report with a number
20   of charts that show various bar graphs.  Each of the --
21   each of the charts shows a set of bars that indicate
22   the percent in that category of person playing lottery
23   this last year and also shows a set of bars indicating
24   how much they say they spend per month.  The percent
25   playing are in blue and the amount spent per month is
0047
 1   in red.
 2                 The first chart presents that by
 3   education.  And you can see that respondents with a
 4   college degree and graduate degrees report playing at
 5   levels somewhat lower than the rest of the population.
 6   And that difference is statistically significant.
 7                 You could also see that the amount of
 8   money spent per month on Texas lottery games tends to
 9   decline consistently with levels of education, from a
10   high for those with less than a high school education
11   of about 50 dollars a month to low for those with a
12   graduate education of about 13 dollars a month.  And
13   that really should shift statistically significant.
14                 The next set of charts looks at those
15   behaviors by income.  And while there's a lot going on
16   in those bars as you see up and down, none of the
17   relationships are statistically significant, meaning
18   that the relationships are not large enough that we can
19   report they do or do not represent relationships in the
20   population.
21                 The next chart looks at lottery play and
22   dollars spent by racial categories.  Here you can see
23   that rates of participation are highest for blacks or
24   African-Americans and lowest for those in the other
25   bar, which in Texas is primarily Asian.
0048
 1                 However, that relationship is not
 2   statistically significant.  But when we look at
 3   expenditures per month, we see that blacks or
 4   African-Americans report spending the largest amount of
 5   money per month and white respondents report spending
 6   the least.  And that difference is statistically
 7   significant.
 8                 So while the percent playing between the
 9   races does not differ statistically, the amount of
10   money spent by those playing does tend to differ in a
11   significant way.
12                 The next chart looks at -- separately, it
13   compares Hispanic players with non-Hispanic players, in
14   terms of percent playing and amount of money spent per
15   month.  And you can see that there are no significant
16   differences reported there.
17                 The next chart looks at percent play and
18   amount spent by gender.  And you can see that males do
19   significantly report playing more so than do women.
20   But the difference spent per month is only two dollars
21   and it's not statistically significant.
22                 The next figure looks at percent play and
23   dollars spent by age.  And you can see that, while
24   there are some variances reported there in the sample,
25   none of those differences are statistically
0049
 1   significant.
 2                 The final chart that we will report on
 3   today looks at play and amounts spent by employment
 4   status.  You can see again that participation rates of
 5   those employed are higher than for the unemployed or
 6   the retired.  And the difference is statistically
 7   significant.
 8                 And you can see that the reported
 9   differences spent per month by those various categories
10   are not statistically significant.
11                 So I will conclude my report with this
12   summary.  We find the rates of participation appears to
13   have leveled off this year.  For the first time in
14   several years, the percent saying they have played any
15   of the lottery games in the past year did not decline
16   from the previous survey.
17                 Point two:  In terms of those demographic
18   factors related to play, we found participation to vary
19   significantly by gender, education and employment
20   status.  Men, those with some college, and those
21   employed report playing at higher rates than others.
22                 And finally, in terms of amount of money
23   spent, we found those characteristics to be most
24   directly and significantly related to be race and
25   education.  Those with lower levels of education and
0050
 1   blacks or African-Americans reported spending more per
 2   month when they played than the other respondents.
 3                 And that concludes our report.
 4                 CHAIR CLOWE:  Very good.  Gary, do you
 5   have any comments on this?
 6                 MR. GRIEF:  Just briefly, Chairman and
 7   Commissioner Cox.  My comments in reading through the
 8   report, when I look at the rates of participation and
 9   the amount of money spent by those different
10   categories, none of that is surprising to me.  I think
11   it's fairly consistent with past reports.
12                 I think it's very important that anyone
13   who reads this report have a good understanding of what
14   the term "statistically significant" means.  And I hope
15   that, when everyone goes away from the meeting today,
16   that we all have a good understanding of that.
17                 The encouraging part of the report for me
18   was the 51 percent that reported playing the lottery
19   over the past year.  And I think that is a -- a direct
20   reflection of the success that this agency is having
21   with marketing our products towards all players.
22                 And finally, after three or four, or
23   whatever the number was, of consecutive years of
24   decline, we've seen a stabilization at least in this
25   report.  We could see that change next year.
0051
 1                 But in general, that's my response to
 2   this report.
 3                 CHAIR CLOWE:  Any questions?
 4                 COMMISSIONER COX:  I do have a couple of
 5   questions.
 6                 Dr. Cole, I'm interested in how these
 7   spending numbers that you determined per person would
 8   blow up to the population, the adult population of
 9   Texas.
10                 DR. COLE:  Yes.
11                 COMMISSIONER COX:  For instance, if we
12   look at figure six, we show how many females play.  We
13   know how many adult females there are in Texas.  We
14   know how much each -- we have a number here for what
15   each spends.
16                 And if we do that for the women and we do
17   that for the men, would we get something like three and
18   a half billion dollars?
19                 DR. COLE:  Well, you should for sure.
20   I -- I did a quick extrapolation myself.  I think, to
21   actually do it correctly as you say, you would have to
22   take literally every category of respondent because
23   every category plays at a different rate.  And when
24   they play, they spend at a different level.
25                 So I think you would have to take a very
0052
 1   large matrix and blow every single one of them up to
 2   the population and then add them up to do that.  And I
 3   did not do that.
 4                 But I did take a quick approximation,
 5   taken all adult Texans 18 years of age older and
 6   multiplying it by the percent in this study who say
 7   they spent and use them as a monthly multiplier an
 8   amount of money on average -- on average spent
 9   correcting for the very extreme cases those who
10   reported spending more than one standard deviation
11   above the average, multiplying that by 12.
12                 And I get a figure of roughly 3.8 billion
13   dollars plus or minus, you know, an error factor there.
14   I think the actual expenditure for the last 12 months
15   was around 3.6 billion.  So it's a rough approximation.
16                 Again as I say, I think to do it one
17   hundred percent accurately, you would need to do it for
18   every category of the sample.  And I would guess, if so
19   done, it would be even closer to the 3.6 million.
20                 COMMISSIONER COX:  Okay.  So you did it
21   for which one of the particular slices?
22                 DR. COLE:  I did it for the entire
23   sample, for the entire sample.
24                 COMMISSIONER COX:  For the entire sample?
25                 DR. COLE:  Yes, sir.
0053
 1                 COMMISSIONER COX:  Okay.  So there might
 2   be an over and under, if we took gender versus income
 3   or something like that?
 4                 DR. COLE:  Right.  Right, definitely.
 5                 COMMISSIONER COX:  So you know it didn't
 6   come out to five and a half or one and a half?
 7                 DR. COLE:  Pardon me?
 8                 COMMISSIONER COX:  You know it wasn't way
 9   off.  It was --
10                 DR. COLE:  Right.  It was very -- it was
11   very close.
12                 COMMISSIONER COX:  So if there's
13   underreporting or overreporting or just general
14   inaccuracy, it doesn't look like to you it's very big?
15                 DR. COLE:  Right.  That's true, sir.
16                 COMMISSIONER COX:  Thank you, Mr.
17   Chairman.
18                 CHAIR CLOWE:  Gentlemen, we thank you.
19   We appreciate the report and your concise report to us.
20                 DR. COLE:  Thank you very much.
21                 CHAIR CLOWE:  Thanks, Mike.
22   Commissioner, may I move we go into executive session
23   at this time?
24                 COMMISSIONER COX:  Do you want to try to
25   get Dr. Eubank?
0054
 1                 CHAIR CLOWE:  Sure.  Where are we with
 2   him?  What item?
 3                 COMMISSIONER COX:  I don't know which
 4   item.
 5                 MR. GRIEF:  Nine.
 6                 CHAIR CLOWE:  Say it again.
 7                 MR. GRIEF:  Nine.
 8                     AGENDA ITEM NO. IX
 9                 CHAIR CLOWE:  Then let's take up next
10   item number nine, report, possible discussion and/or
11   action on the lottery terminal functionality, including
12   the quick pick feature, for all games and/or impact to
13   players.
14                 Mr. Anger?
15                 MR. ANGER:  Good afternoon,
16   Commissioners.  For the record, my name is Michael
17   Anger.  I'm the Lottery Operations director.
18   Commissioners, I'm joined at the table today to your
19   left by Dr. Randall Eubank, the agency's statistical
20   consulting services vendor.
21                 And I'm also joined today on your right
22   by Chenghui Luo, consulting software engineer, and Ron
23   Goodrich, technical manager for Gtech Corporation.
24                 Dr. Eubank has joined us today to report
25   on his analysis of quick pick related data to terminal
0055
 1   functionality for all the Texas Lottery online games.
 2   In addition to his initial analysis, Dr. Eubank worked
 3   with representatives from Gtech, including Mr. Luo, to
 4   complete secondary review and analysis related to his
 5   initial findings.
 6                 Mr. Luo and Mr. Goodrich have been --
 7   been kind enough to make themselves available today to
 8   respond to any questions following Dr. Eubank's
 9   presentation.  And with that, I'll turn it over to
10   Dr. Eubank.
11                 DR. EUBANK:  Good afternoon.  For the
12   record, my name is Randy Eubank.  I am a professor in
13   the Department of Mathematics and Statistics at Arizona
14   State University.  It's nice to be in Austin again and
15   Hook 'Em Horns.  I can say -- as an Aggie, I can say
16   that here and get away with it and --
17                 CHAIR CLOWE:  We thank you for that.
18                 COMMISSIONER COX:  There was a shirt out
19   there that said Gig 'Em Horns.
20                 DR. EUBANK:  But not at A&M.  I can say
21   that much.
22                 COMMISSIONER COX:  It was actually
23   maroon.
24                 DR. EUBANK:  As -- as Michael indicated,
25   the reason I'm here is, over the last few months, I've
0056
 1   been working on the analysis of data that had been
 2   supplied to me by Gtech on their quick pick generation
 3   mechanisms.
 4                 And so today I want to talk -- tell you a
 5   little bit about what I've done and some of the things
 6   that have come up as part of that analysis.
 7                 Before I -- I go -- I delve into this and
 8   overkill everybody with numbers, I want to go off on a
 9   couple of tangents here and to preface some of the
10   things that come up.  And the first thing I want to
11   talk about for just a couple of minutes has to do with
12   random number generation.
13                 So when we're talking about the quick
14   pick generation mechanism or whether we're talking
15   about (inaudible) method of generating the -- the
16   megapliers, there's various -- various bells and
17   whistles that get added on top of this to make things
18   truly random.
19                 But at the heart behind all this work is
20   something called a random number generator or pseudo
21   random number generator.  And this is -- even though it
22   may be relatively new in terms of the experience of
23   some of the people in the room, this is a technology
24   that goes back -- it basically traces its way back to
25   the beginning of computers when people started putting
0057
 1   computers together.
 2                 And some of the big names from
 3   mathematics and computer science pop up here.  So the
 4   technology goes back into the 1940s with very good
 5   random number generators starting in about 1950.  So in
 6   scientific terms, this is pretty old stuff.  This has
 7   been around for a long, long time.
 8                 So there's nothing startling in terms of
 9   random -- what's going on with random number
10   generators.  And beyond that, the -- so random number
11   generators have been extensively studied in -- in the
12   public sector, at the universities, National Bureau of
13   Standards and other places of that nature.
14                 And these are a publicly-available, open
15   source.  They cost the price that I can afford, zero.
16   People can get them for nothing.  And they -- they're
17   known to work exceptionally well.  So for -- as an
18   example of that, there's something that's fairly recent
19   in this context.  It's something called Mersenne
20   Twister.
21                 And so the Mersenne Twister is -- let me
22   briefly talk about what a random number generator does.
23   You give it a starting point.  And what this algorithm
24   does is it spits out a long sequence, hopefully a long
25   sequence of numbers.  And one or two things can happen.
0058
 1                 At some point, either the numbers all
 2   become zero or, at some point, the sequence starts over
 3   again.  Now that doesn't mean that the sequence can't
 4   have the same numbers in it sometime.
 5                 What I'm saying is, at some point, if you
 6   knew where it started and you knew where it's going to
 7   start again, you can see every -- you know everything
 8   that's going to happen after that point when it starts
 9   over.
10                 Now the -- how long it takes for this
11   thing to start over is the period of the random number
12   generator.  And things in the order of two-to-the-30
13   and so on are not -- are relatively standard.  Well,
14   the Mersenne Twister has a period of -- and this is
15   public -- this is open source code.
16                 I can tell you two places that you can go
17   and download the C code for this for nothing.  You may
18   not be able to afford a Cadillac Coupe de Ville, but
19   you can have the Coupe de Ville of random number
20   generators on your own PC for zero dollars.
21                 All right?  And that's this Mersenne
22   Twister.  It has period two-to-the-20,000 roughly.  Now
23   to give you some context of how big that is,
24   two-to-the-30 is about 4.3 billion, which is what they
25   tell me Gtech is -- add or subtract about point -- a
0059
 1   trivial .2 billion and you'll get about the -- what
 2   I've heard is about what was paid for Gtech by
 3   Lottomatica.
 4                 And I -- I don't know what that is in
 5   lira.  So -- so but anyway, that gives you some sense.
 6   I mean, so this is two-to-the-30 -- 30 or 32, actually.
 7   And so two-to-the-20,000 thousand, you -- if we started
 8   that on -- on something like Texas Two Step and we used
 9   that for generating the sequences there, the sun would
10   probably burn out before we'd have to worry about it
11   starting over again.  And that's something -- I'd like
12   to be around for that, but I don't think I will.
13                 All right.  Now so the -- the -- the --
14   at issue here is that Gtech -- there are lots of really
15   good random number generators out there that are in the
16   public domain that have been tested, that have been --
17   there's published research on them.  Scientists have
18   looked at them.  They've proved theorems about them and
19   have extensively simulated them to where they really
20   understand them.  They've found some good ones and
21   they've found some bad ones.  But the good ones are out
22   there and they cost you nothing.
23                 Gtech doesn't use any of those.  And now
24   that doesn't mean that their random number generator is
25   either good or bad.  But a lot of things that I've done
0060
 1   that I'll talk about today would not -- would have been
 2   moot issues if one of these had been used because it
 3   would be something that you could point to a spot in
 4   the literature and say there's 47 hundred articles on
 5   this that have already proved that it worked.
 6                 All right.  Now back to the other thing,
 7   which the previous discussion talked about a little bit
 8   and so I maybe don't have to say so much about this, is
 9   the term "statistical significance" because I'm going
10   to -- this is going to come up a lot.
11                 So let me go back over again what -- what
12   that means.  Now the term "statistical significance,"
13   when I say something is statistically significant, it
14   means that something has happened that I don't expect
15   to happen under a presumed model.
16                 Now when I say model, I'm not talking
17   about some sort of arcane mathematical construct.
18   Models are really very simple things that lots of
19   things -- in the context of the lottery, for example,
20   in the case of Cash Five, there are something like
21   about 400 thousand ways that you can choose five
22   numbers from 37.  Those are every possible board that
23   you can get in Cash Five.  There's about 400 thousand
24   of them.
25                 So a model here would be that every one
0061
 1   of those boards has the same chance of being selected
 2   or every one of those possible boards has the same
 3   chance of being generated by the quick pick generation
 4   methods.
 5                 So if I say that something's
 6   statistically significant in the context of Cash Five,
 7   what I'm saying is I'm seeing departure from what I
 8   would have expected under this uniform generation
 9   model.  And that's -- that's what I mean.
10                 Now unusual things happen.  And my
11   standard -- there are three standard rates that -- that
12   people use for level of significance:  Five percent, 10
13   percent and one percent.  I like to think of these
14   things as -- I like to think of this from the
15   standpoint of trial by jury.
16                 The level of significance is my
17   reasonable doubt.  The model here is what's on trial
18   and I'm trying to convict the model.  And the level of
19   the significance is my reasonable doubt.
20                 Now just like in trial by jury, I can
21   never be sure -- I can never be sure that somebody is
22   guilty.  I don't have to be sure.  We only have to be
23   sure beyond a reasonable doubt.  If we had to be
24   absolutely sure, there would never -- I would --
25   wouldn't have to worry about committing crimes.
0062
 1                 So the -- the difference between this and
 2   trial by jury is that we have standards that we usually
 3   go by.  And it's the five percent, 10 percent and one
 4   percent.  My typical use here is the five-percent
 5   level, which means that I call something unusual if I
 6   would only see it in about one out of every 20 times if
 7   everything was working exactly right or five times out
 8   of a hundred if everything was working -- was working
 9   exactly right.
10                 Because unusual things can happen --
11   because unusual things can happen, that doesn't
12   necessarily mean the model is incorrect if I say that
13   something's significant.  It just means that there's
14   evidence beyond a reasonable doubt that it's not
15   correct.
16                 Sometimes guilty people get put in jail.
17   And sometimes innocent ones get put in there.  All
18   right.
19                 And the last thing has to do with
20   statistical significance versus practical significance.
21   And I think this is something that I probably can't
22   emphasize enough.  The two terms can coincide but they
23   may not if -- an example of that, let's -- let's
24   suppose that I have a new drug that is able to cure one
25   more person out of a million than the drug that's
0063
 1   currently in place.
 2                 If you give me enough data on it, at some
 3   point I will eventually be able to show that there's a
 4   statistically significant difference between the two
 5   drugs.  And the question is whether or not that's
 6   practically significant.
 7                 If you're that one person out of a
 8   million, you'd probably say that it was.  But if you
 9   were on the board of directors at Pfizer, you wouldn't
10   change your entire marketing mechanism to do something
11   which, in your opinion, in the global structure
12   probably is not worth the effort.
13                 So they would -- somebody would call
14   that -- at Pfizer, they would say that that's of no
15   practical significance.  All right.  Now that's the
16   setup.  So now I get to spend the next few minutes on
17   the punch line.
18                 The -- this all began, as you know, on
19   June 16th when Gtech reported that they had detected an
20   abnormality in the quick pick generation mechanism for
21   Pick 3 so the numbers one, two, three and four were
22   being picked more often than they should be, around 11
23   percent, and the other numbers were being picked in --
24   with a smaller chance than they should be.
25                 So they -- they corrected the code and
0064
 1   tested the new -- the new implementation of it and
 2   indicated that everything had -- was fine at that
 3   point.  Now shortly after that was when I got a call
 4   from Michael, as I recall.
 5                 And I was asked to take -- to undertake
 6   the following project.  I had -- there was three parts
 7   to this.  One was to -- using data provided by Gtech, I
 8   was to analyze live quick pick transactions taken place
 9   immediately before the code fix, before the problem was
10   detected, live data after the problem was detected --
11   this is all for Pick 3 -- and also do a complete
12   analysis of the quick pick generations for all the
13   online games, including Pick 3.
14                 The data that I received for this had --
15   came in three forms.  There was live data that comes
16   from whatever the standard terminal is that Gtech uses
17   in most of the -- in most of the stores.  But there are
18   two other types of terminals.
19                 And I know less than -- I'll say what
20   little bit I know.  I won't go into the details of
21   this.  There are two other types of terminals that
22   are -- that are used.  They're not used very frequently
23   or they're in locations that are of -- that don't get a
24   lot of business.
25                 They're called GTD and SST.  And because
0065
 1   they're used so seldom or used not as much, it would
 2   take a long time to generate the amount of data that I
 3   need to do the analysis.  So I decided on the basis of
 4   that that those terminals, the data I'll get from them
 5   would be simulated.
 6                 So they would have a terminal.  They'd
 7   set it up and it would go off and generate the -- the
 8   quick picks.  And that was the data that I looked at.
 9                 So the -- the methodology -- one of the
10   reasons I was asked to do this is to give sort of an
11   independent view of the whole thing from a different
12   approach.  And that's -- that was my perspective on
13   this.  I didn't -- to my knowledge, I didn't repeat any
14   of the tests that Gtech would have used for this.
15                 I came at it from the -- from the point
16   of view of a blank slate.  And the basic problems that
17   arise here, in terms of testing or uniformity in two
18   cases, you've either got numbers that are picked from a
19   group of numbers with replacement or without
20   replacement.
21                 In the context of Cash Five, you're
22   selecting five numbers from 37.  You can't get the
23   number 1-1-1-1-1.  Okay?  That can't come up because
24   you do it without replacement.  So that's a case of
25   sampling without replacement.
0066
 1                 Something like Pick 3, for example, you
 2   can get a triple:  0-0-0 could come up.  And so that's
 3   a case where you're sampling with replacement.
 4                 The -- and then there are sort of mixes
 5   of these.  With something where you have a bonus ball,
 6   you can think of that as basically being a mix where
 7   you have without replacement for the -- the primary
 8   board.  And then the bonus ball is something that you
 9   could think of as being sampled without replacement or
10   with replacement, rather.
11                 So to find out the things that were sort
12   of the good things to do, I went to a database,
13   statistical database, called the current index to
14   statistics.  And this is a huge database, went back
15   many years, looks -- all the standard journal -- a lot
16   of nonstandard journals.
17                 And I knew some of this literature was
18   out there already.  But to make sure that I was
19   thorough, I went through the -- this large database,
20   found some interesting things, did my search engine
21   work through there and looked at more statistical
22   articles than most people would ever want to look at
23   and came up with a collection of methodology.
24                 The details on that you can find in the
25   reports.  So you can -- you can trace those down if
0067
 1   you're interested.  I won't go into any great detail
 2   other than that and other than to say that I think I
 3   was thorough in finding the good -- the good things.
 4                 So now let me talk a little bit about the
 5   data analysis itself.  So the -- I won't give the
 6   details on how much data I had.  As I -- as I go any
 7   further along, I won't spend much time on that.
 8                 But -- but for the Pick 3 case, let me
 9   talk about that for just a couple of seconds.  So I had
10   about 140 thousand live quick picks prior, for Pick 3
11   prior to the -- the code problem and about 120 thousand
12   after the code fix.  And then there was a hundred
13   thousand simulated from the GBT, 150 thousand from the
14   SST terminals.
15                 My analysis didn't show anything of
16   interest on the simulated data, so I won't talk about
17   that.  But I will talk for a couple minutes about the
18   -- the two live data sets.
19                 Now one of the issues here is just to see
20   if the -- to talk about what was actually going on
21   prior to the code fix.  And what I want to show you
22   here is, this is a corresponding confidence interval.
23   Simultaneous corresponding confidence intervals
24   actually correspond -- they were constructed from the
25   -- the live data set prior to the code fix that show --
0068
 1   these are things which, with 95-percent simultaneously,
 2   have a probability of capturing whatever the true
 3   probability of getting a 0-1-2-3 and so on.
 4                 Now you can see -- if you look here, you
 5   can see.  Here is this .93 or .093.  And here's about
 6   .11.  These are what the true probabilities should have
 7   been if the code problem was as it had been -- as it --
 8   as it had been diagnosed.
 9                 These are confidence levels constructed
10   from the sample.  As long as the red dots are inside
11   the blue lines, that's -- that's consistent with what
12   they believe the code -- the problem in the code was.
13                 And so looking at this, one would say
14   that they actually hit the nail right on the head and
15   did -- they -- they did know exactly what the issue
16   was.
17                 After the code was fixed, everything
18   should have occurred with probability .1.  And that's
19   what these true probabilities are.  And here are the
20   corresponding confidence intervals, of course, that --
21   that resulted from the live data after the code fix.
22                 Now this looks strange because I've
23   changed the scale.  But the scale here is only about,
24   what, three one-thousands.  So this is -- this is
25   taking a microscope and looking at it.  And there's
0069
 1   nothing going on, in terms of all this -- looks like
 2   bad dental work.
 3                 Now something more interesting --
 4   something more interesting here was -- what I just
 5   showed you was a univariate marginal distribution.  I
 6   looked at how many times I saw 0-1-2-3 and so on.  But
 7   there's another way to look at this data because these
 8   -- they really come to us in threes.
 9                 Each board has three things on it and
10   there are one thousand possibilities starting from
11   0-0-0, 0-0-1, 0-0-2 and so all the way -- and so on,
12   all the way up to 9-9-9.  And that's what I'm going to
13   show you next.
14                 So I looked at every -- I had enough data
15   where I could look at every one thousand of these
16   things.  And that's what this plot is right here.  This
17   is a -- a -- basically a histogram.  I'm showing you
18   the frequency of times that I saw numbers everywhere
19   from 0-0-0 up to -- to 9-9-9.
20                 And this is -- for those of you -- I'm
21   sorry.  For those of you who do crossword puzzles, I'm
22   going to -- this is a new word that you'll want to
23   remember.  This is in lexicographic order starting with
24   0-0-0, 0-0-1, 0-0-2, all the way up to 9-9-9.
25                 Now this red line here is the -- sort of
0070
 1   the no-fly zone.  It's the -- it's an -- it's a
 2   simultaneous upper bound.  And if everything is working
 3   as it should -- if everything is working as it
 4   should -- there's people that probably have to -- are
 5   going to have hearing problems now after -- after the
 6   amp amplified my voice, which doesn't need much
 7   amplification.
 8                 This is the no-fly zone right here.
 9   Things shouldn't come up above here.  Everything should
10   be -- all these spikes or all these -- these bars and
11   histograms should all be -- and you can see that
12   there's several of them up above it.
13                 And if you look, it's easy to diagnose.
14   This is 0-0-0, 1-1-1, 2-2-2, 3-3-3 and so on.  All the
15   triples were getting picked with higher probability
16   than they should have.
17                 So -- and this is -- this is for the
18   post, after the fix, live data.  The same things showed
19   up in the prefix live -- live data.
20                 I wrote a report on this.  This
21   information was passed on to Gtech.  They did some
22   investigation.  Their conclusion was that the reason
23   this had happened was because there was a terminal
24   functionality that would allow players/attendants to
25   reject a quick pick and that that was what had caused
0071
 1   the problem.
 2                 There were -- there were places where the
 3   players were just sitting there rejecting quick picks
 4   until they got them something that they liked.  And I
 5   guess they liked triples.
 6                 Well, in any case, the -- the terminal
 7   quick pick functionality was -- was turned off.  A new
 8   set of data was collected.  And this is basically the
 9   same picture I showed you a minute ago except now I'm
10   showing you both upper and low bounds for this.  And
11   instead of the bars, I'm just putting some circles
12   here.
13                 CHAIR CLOWE:  Dr. Eubank, let me ask
14   you --
15                 DR. EUBANK:  Sure.
16                 CHAIR CLOWE:  -- to define more fully
17   what you mean when you say players were allowed to
18   reject.
19                 DR. EUBANK:  They --
20                 MR. ANGER:  Chairman, essentially with
21   the quick pick game -- and I'll ask representatives
22   from Gtech to -- Gtech Texas to step to the table and
23   correct me if my explanation is inaccurate.
24                 But with the Pick 3 game, the quick pick
25   generation actually would take place on the display
0072
 1   screen.  So the number would generate and the clerk
 2   could see the number that came up when they hit the
 3   quick pick button before completing and sending the
 4   rest of the transaction through.
 5                 CHAIR CLOWE:  Before it's printed?
 6                 MR. ANGER:  Before it printed.  And that
 7   was unique to just that game.  None of the other games
 8   could you see the -- the random number that was
 9   generated, random number combination that was generated
10   prior to the generation of the ticket.
11                 That took place off screen.  And so when
12   the ticket generated, that's the first time you would
13   see it.
14                 CHAIR CLOWE:  So did the players then
15   look at the screen with the attendant and the number
16   would come up on the screen and they would say "No, I
17   don't want that" and then there would be another quick
18   pick display?
19                 MR. ANGER:  That is my understanding.
20   Gtech -- we presented this information to Gtech.  They
21   went out and spoke to stores out in the field and
22   communicated with their service representatives out in
23   the field.  And that is the explanation that came back.
24                 So Gtech suppressed the functionality
25   that would allow that quick pick number to be generated
0073
 1   and shown on the screen prior to the transaction.  And
 2   when they did and they provided new data to Dr. Eubank,
 3   this anomaly that he showed on a prior screen that
 4   triples came through at a higher rate disappeared and
 5   everything -- and I'll defer to Dr. Eubank that
 6   everything returned to a normal distribution.
 7                 CHAIR CLOWE:  And I've never heard of
 8   that before.  And I assume -- I believe I heard you say
 9   that's the only game where a preview, if I could call
10   it by that title, appeared before the ticket was
11   printed and a player might be allowed to reject the
12   quick pick and go on and make additional and other
13   choices.
14                 MR. ANGER:  That is correct.
15                 CHAIR CLOWE:  And that's been removed?
16                 MR. ANGER:  It has.
17                 CHAIR CLOWE:  Okay.
18                 DR. EUBANK:  So as Michael said, after
19   the -- with the data that -- that we received after
20   this functionality had been removed, you don't see --
21   so this is basically the same sort of thing.  We have
22   -- I have now an upper and lower no-fly zone because I
23   want to look for things in either direction.
24                 And you don't see the triples again.  Now
25   this is, I think, the number 4-1-6.  And that -- this
0074
 1   is simultaneously.  Every one of these one thousand
 2   things should be in here.  So this is something that
 3   shouldn't have happened either.
 4                 But it's completely different from what
 5   we saw a second ago.  So I -- I'm not going to talk
 6   about that in any depth.  I don't have any explanation
 7   for it other than to say that this is a piece of
 8   evidence and sort of move to the -- to the next one.
 9                 Now so for Cash Five, nothing that I did
10   revealed anything of substance, any sort of source of
11   thing that's out of the -- sort of the norm for what we
12   would expect from a statistical perspective.
13                 For the Texas Two Step data, there was no
14   problem with the simulated data.  But for the live
15   data, there were tests that I did on bivariate marginal
16   distributions that showed up having a P-value of .1.
17                 Now what is a P-value?  A P-value --
18   we'll talk about this in a little bit, but let me go
19   back and say it again.  It's basically the observed
20   level of significance.  So when I say that something
21   has a P-value of .01, I'm saying that there's about a
22   one-percent chance that something like this would
23   happen if everything was working exactly like you would
24   expect it to.
25                 I -- my cutoff is five percent.  And so
0075
 1   anything below five percent I call statistically
 2   significant.  So this is statistically significant in
 3   the sense of what I think of as evidence beyond a
 4   reasonable doubt.
 5                 Now what is the bivariate marginal
 6   distribution?  Let me talk about that for just a
 7   second.  This is on the primary boards for Texas Two
 8   Step.  So that's four numbers taken from 35 without
 9   replacement.
10                 The univariate marginal distributions
11   mean I look at the number -- I look at the number 1, 2,
12   3, 4, all the way to 35.  And I see how much -- how
13   often they come up.  Bivariate says I look at 1 in
14   combination with 2, 3, 4, how many times on a board did
15   I see 1 with 2, 1 with 3, 1 with 4, all the way to 1
16   with 35, 2 with 3, 2 with 4, all the way up to 2 with
17   35 and so on.
18                 There's about 600 of these combinations
19   that you look at.  And you can test under the model
20   that everything's being generated with -- with -- all
21   the boards appear with uniform frequency.  All these
22   pairs have to appear with uniform frequency, as well.
23                 So there was indication that that was not
24   being -- that those boards were not -- that -- the
25   quick picks generated for the primary boards for Texas
0076
 1   Two Step game were not being generated with this
 2   uniform frequency, at least in terms of the way the --
 3   the data showed on the bivariate distributions,
 4   bivariate margins.
 5                 So for the -- the Lotto Texas game, none
 6   of the live data sets had any issues.  But for the --
 7   both the simulated data, some unusual things happened.
 8   For the data from the GBT terminal, there were issues
 9   that arose with both the univariate and bivariate
10   marginal distributions for the primary boards, the
11   P-values that fell below my five-percent cutoff, about
12   two percent, two and a half percent.
13                 And then for the SST terminal data, there
14   were the -- when you looked at the bonus numbers that
15   appear on the generated boards, those showed up as
16   being statistically significantly different from
17   uniformity at something along the one-percent level.
18                 All right.  And finally with Mega
19   Millions, nothing untold showed up.  So let me
20   summarize and then try to say a few other words that
21   maybe puts this in a -- in a proper context.
22                 First of all, what -- if you look back at
23   everything that happened, we've certainly seen some
24   unusual things that we wouldn't have expected to see.
25   And it's not only unusual in a statistical sense but
0077
 1   it's also, I have to admit, unusual in my experience
 2   working with random number generation.
 3                 Certainly when I signed on to -- to do
 4   this project, I had no idea that I would see some of
 5   the things that I saw.  And there have been some -- a
 6   number of hours of sleep lost in my life as a result of
 7   that.
 8                 But to say this -- to put this all in
 9   sort of a global perspective, you have to actually talk
10   about what unusual means here.  And unusual certainly
11   depends on the level of significance that you use.
12                 Gtech, in terms of the analysis that they
13   do, they -- their level of significance that they use
14   is about -- and depends on how you say that.  But to
15   get a -- a correct comparison to the sort of way that I
16   did my test and the way they do things, their level of
17   significance was about -- is about a half a percent.
18                 And so is it that I'm just being too
19   picky with my five percent?  And I think the answer is
20   here that neither one of us is -- we're really doing
21   different things.  So one can't say that half a percent
22   is something that you could use all the time or
23   necessarily that five percent is something they should
24   use or that half a percent is something I -- I should
25   use.
0078
 1                 So the way I think about significance
 2   here, the only way I think you should even think about
 3   significance, levels of significance, is in terms of
 4   repeated sampling.  So the idea is that, if I could do
 5   this thing again and again and again, then if I'm using
 6   a five-percent level of significance, about five
 7   percent of the time I'm going to see something unusual
 8   that's going to happen.
 9                 Now in the real world, most of the time
10   we only get one sample.  And I would claim, to at least
11   a certain extent, that I only had one sample here.  I
12   had -- and I'm going to waffle on that in a minute.
13   But for right now, I claim that, in terms of SST for --
14   the SST terminal data for Lotto Texas, I only had one
15   of those.
16                 I didn't have 200 thousand of those.  I
17   only had one.  And if that's the case, then you have to
18   make a call.  So I've got something that's significant
19   at the five-percent level.  What's going on?  Is
20   this -- is the -- is the defendant guilty?  Is there
21   evidence beyond a reasonable doubt?
22                 I don't necessarily mean that I'm sure
23   that they're -- they're guilty, but I'm sure beyond a
24   reasonable doubt or not.  In trial by jury, you can't
25   say well, okay, let's let him go and see if he does the
0079
 1   crime again.
 2                 I mean, no -- nobody's going to do that.
 3   And that's the way data analysis is.  You don't get
 4   another run at it.  So as a rule, you only see it one
 5   time.  And from that perspective, something like the
 6   five-percent level is a reasonable thing to do.
 7                 Now the unique thing about random number
 8   generation is that it's -- it's the one case that I
 9   know of that's completely different from the -- what
10   mostly happens in the real world.  It's one case and
11   it, of course, is a real-world scenario, too.
12                 It's the one case that I know of that's
13   different in the sense that you can generate data --
14   and by the way, I'm from Texas A&M.  I have to say
15   this.  You can generate that until the cows come home.
16   And nobody's going to stop you.
17                 You own your random number generator, you
18   can just keep on doing it.  I wrote a random number
19   generation routine.  I took one -- one of these
20   off-the-shelf things, got it out of the textbook, wrote
21   it up in a couple hours, had data going, and I
22   generated data set after data set after data set that
23   would have been -- you could view as being the primary
24   boards for Texas Two Step.
25                 And by doing that again and again and
0080
 1   again, I can prove to any level of significance that
 2   you want whether my random number generator is working
 3   or not.  That's -- Monte Carlo simulation is the only
 4   place that I know of that you can just keep on doing it
 5   and, if you want a certain level of accuracy, you can
 6   get there.  Just let that computer run long enough.
 7                 So the -- the problem here is that, with
 8   the way things work for Gtech, there are some technical
 9   difficulties with doing that.  So you can say, "Why
10   doesn't Gtech just do that and just prove to us beyond
11   any doubt that their random number generator's working
12   the right way?"
13                 There's technical difficulties with doing
14   so.  So I -- I view this as -- it's just -- it's --
15   it's -- it's a problem, in a -- in a certain sense,
16   that it makes life a little bit more difficult than it
17   should have been in that there -- there's sort of a
18   double-whammy here.
19                 There's not a random number generator
20   that's being used that's one of these things that's
21   been studied extensively in the public sector with --
22   with lots of literature and backup on it.  And on the
23   other hand, because of the way that the mechanism is --
24   has been created for generating these quick picks, you
25   can't actually say, well, I'm just going to show you
0081
 1   that it works.
 2                 So instead, we're -- we're left with a
 3   situation like the one we've got where I looked at some
 4   data.  I found some stuff that's strange.  And, you
 5   know, does it mean there's something not right or -- or
 6   what?
 7                 Now -- now I'll waffle on what I said a
 8   minute ago.  So I said that I only had one sample.
 9   Well, that's true but it's also not true.  I actually
10   had 17 different data sets that I looked at.  And I
11   looked at a whole lot of statistical tests.
12                 So I found a number that were
13   significant.  But is it because sometimes strange
14   things happen?  Could it be that I -- I looked at a lot
15   of tests.  It came up that we saw several of these
16   things that -- that were significant.
17                 And so we've seen some evidence.  And the
18   question is whether or not -- is the evidence
19   sufficient to convict?  Now so how does a person go
20   about doing that?
21                 Well, it turns out that this happened at
22   a opportune time because there had been a good bit of
23   interest in something lately that has to do with
24   statistical genetics and connections to micro ray
25   study.
0082
 1                 There's something that -- that's gotten a
 2   lot of interest in the literature lately called working
 3   with false discovery protection.  So the idea is you're
 4   doing a lot of tests and you want to be sure at some
 5   level, which is roughly like the level of significance,
 6   of not -- you want to ensure yourself that you don't
 7   get too many false discoveries.
 8                 There's a number of procedures that are
 9   out there for doing that.  And I instituted one of
10   these.  It's something that was developed by Benjamini
11   and Hoshberg in the Journal of the Royal Statistical
12   Society in the last four or five years.
13                 Now what this does is, it's a procedure
14   that you use.  And you say -- you put all your tests
15   together.  And it gives a lower bound for the P-values
16   for these tests.  And if the -- the P-values fall below
17   these lower bounds, then you say I've seen something
18   and the defendant is guilty beyond a reasonable doubt.
19                 Now I ran this at the -- the five-percent
20   level in terms of -- I mean, I controlled my false
21   discovery at the five-percent level.  And so I'll --
22   I'll cut to the chase here and I'll show you the -- the
23   results of this.
24                 Now what I'm showing here, the blue
25   line -- wow, that showed up great.  Didn't it?  Okay.
0083
 1   There they -- let me just -- so watch my -- my corner
 2   here.  There's the blue line.
 3                 And there is the red line down here.  The
 4   red line is the Benjamini and Hoshberg lower bound.
 5   Now you can't really see it down here, but the blue
 6   line is just barely above the red line.
 7                 If it had fallen below the red line, then
 8   I would have said that, with false discovery controlled
 9   at five percent, that we've actually seen something.
10   So on the basis of this, if we -- if we put it all
11   together -- and let me just say that there -- that
12   Benjamini and Hoshberg is one of the standards here.
13                 There's criticisms of it.  It's very
14   conservative.  So it's the -- it's -- it's setting --
15   in some ways, it sets its reasonable doubt, in terms of
16   the way it does things, a little bit -- makes things a
17   little bit more stringent, a little bit harder to get
18   across that bound.
19                 But it's one of the standards in the
20   area.  So there -- it's certainly a reasonable
21   technique to have used here.  But using that, one
22   cannot say with certainty, at least not at this -- this
23   -- with a five-percent level of protection for false
24   discovery, you cannot say with certainty that what we
25   saw here wasn't just a result of the fact that we did a
0084
 1   lot of statistical tests.
 2                 So I think we found a lot of evidence.
 3   So if I had to summarize this, we found a lot of
 4   evidence but maybe just not enough evidence to come up
 5   with a guilty verdict.  So my verdict on this is not
 6   guilty or I -- I haven't found enough statistical
 7   evidence to say that this quick pick mechanism is not
 8   working exactly like it should.
 9                 The -- and so maybe the last thing that
10   should probably be brought up here has to do with --
11   we've talked about statistical significance.  At the
12   very beginning, I talked about practical significance.
13                 So let's suppose that -- that we found
14   some other approach and we did -- that -- that this was
15   statistically significant.  Would there be any
16   practical significance here?
17                 And my feeling is that there would be no
18   practical significance.  Whatever's happening here, if
19   anything is happening, is extremely subtle.  And any
20   implications it might have, either positive or
21   negative, for the lottery or the lottery's players I
22   think are of no practical consequence and probably not
23   something that could be quantified in any way.
24                 COMMISSIONER COX:  I'm going to step out
25   there and ask one question.
0085
 1                 DR. EUBANK:  Okay.  Skewer me.
 2                 COMMISSIONER COX:  Actually, two
 3   questions.  How many hours did all this take?
 4                 DR. EUBANK:  I was 35 years old when I
 5   started this.
 6                 COMMISSIONER COX:  Wow.  You indicated
 7   early on that, if I understood it correctly, there are
 8   lots of public domain, well-tested random number tables
 9   out there.
10                 DR. EUBANK:  Yep.
11                 COMMISSIONER COX:  And that Gtech had not
12   chosen to use one of those and, had they chosen to use
13   one of those, your work would have been less difficult.
14                 DR. EUBANK:  Certainly.
15                 COMMISSIONER COX:  Is that an ongoing
16   problem that we would want to ask Gtech to think about
17   reconsidering the random number table that they use or
18   is it a one-time thing that's behind us now?
19                 DR. EUBANK:  So my -- my feeling is that
20   it -- there's no reason to ever put yourself in a
21   position where you can be questioned.  So if you ask me
22   to create a random number generation mechanism, I would
23   go out and get one that -- that was -- was out in
24   the -- in the literature and I'd use it because nobody
25   could ever cause it -- nobody could ever bring what I
0086
 1   was using into doubt.
 2                 All right?  The -- the other side of this
 3   has to do with this -- there's modern technology there.
 4   I don't know -- I'm speaking out of school because I
 5   don't know the -- all the details.  But I do know that
 6   the -- that the number generation mechanism that's
 7   being used by Gtech is something that's been around for
 8   quite some time.
 9                 There are modern techniques out here.
10   And I -- my feeling is that -- you know, as a person
11   who lived in Dallas and used to drive on Central
12   Expressway, the longer you wait to fix -- to bring
13   something up into today's age, the more -- the harder
14   it's going to be when you finally get around to doing
15   it.
16                 So if -- if they -- if they would ask me
17   to -- should you use one of these new random number
18   generations, I -- the -- the price on them is just
19   right.
20                 Now in terms of implementing it, I know
21   that it's not cheap.  But it's never -- that's
22   something that has to be done, in terms of mechanics
23   and putting all this in the terminals.  And I know that
24   there's cost involved here.
25                 But I think in the long run -- you know,
0087
 1   this is just my opinion that a layman who knows nothing
 2   about the business side of things, my opinion is
 3   there's no reason to ever put yourself in doubt.
 4                 There's wonderful things that are out
 5   there that nobody could ever ask -- ever could --
 6   nobody could ever doubt you.  And if they had told --
 7   if they said we use the -- this Mersenne Twister, for
 8   example, I'm not sure that this whole analysis would
 9   have ever made much sense.
10                 COMMISSIONER COX:  Thank you, Dr. Eubank.
11                 CHAIR CLOWE:  Well, I can see you
12   gentlemen from Gtech are just salivating at the
13   opportunity to comment on this.  Who wants to be first?
14                 MR. GOODRICH:  For the record, my name is
15   Ron Goodrich.  I'm a software technology leader in --
16   in the -- living and working here in Austin at the
17   Gtech Austin Technology Center.
18                 And I did bring a little comment I wanted
19   to read from -- from the Gtech -- from the Gtech group.
20   Actually, that -- that would be the guys that worked at
21   corporate with Dr. Eubank and some of the folks in
22   Austin that worked in collecting the six hundred tons
23   of data that was -- was analyzed.
24                 First of all, they all wanted to thank
25   Dr. Eubank for the -- for working with -- with us and
0088
 1   with Gtech in examining this issue.  It has been --
 2   it's been a lot of work.  And particularly Tom Mormon
 3   and my associate, Chenghui here, spent a lot of hours
 4   working on it.
 5                 And we do agree that there's been a
 6   substantial exchange of data and discussion regarding
 7   the random number generation.  And it was through,
 8   actually, a test proposed by Dr. Eubank that we did
 9   discover that there -- you know, we agree that there is
10   some level of -- that although the selections are
11   random, there's some slight statistical deviations in a
12   couple of the games.
13                 And, you know, let's not forget some of
14   the other games did -- did just come right through
15   clean.  At this point, we want to emphasize that --
16   that this issue does not have any practical effects on
17   the citizens of Texas and -- who do elect to quick pick
18   their numbers.
19                 However, in agreement with Dr. Eubank and
20   an abundance of caution, Gtech -- and because it would
21   not be wise to -- well, let me back up.  Gtech has
22   begun review of our random number generator routines.
23                 And in an abundance of caution, we -- we
24   do not want to -- to rush something out into the field
25   that could end up just coming back on us with 10 times
0089
 1   the concern.  So we don't want to rush anything to the
 2   field.
 3                 However, work -- we wanted to make sure
 4   that you know that work has begun analyzing the best
 5   approach to -- and we're pleased to -- we will be
 6   reporting our -- our findings back to this commission
 7   in the future.
 8                 So that's -- that's where I leave it.
 9                 DR. EUBANK:  Could I just make one
10   comment, actually two comments?
11                 First, I want to second the statement
12   about the practical significance of this.  I've already
13   said that, but I want to emphasize that I -- I agree
14   with that.
15                 And the second part of it is that Gtech
16   has been really very forthcoming with all this.  It's
17   been a very -- it's been a -- there's been a lot of
18   mutually shared information.  And anything I've asked
19   for they've provided for me.
20                 CHAIR CLOWE:  Dr. Eubanks, could I
21   summarize what you told us in that my understanding is
22   that you have conducted extensive review, almost
23   exhausting.
24                 DR. EUBANK:  Yeah.
25                 CHAIR CLOWE:  And that you found some
0090
 1   things that you felt were of some level of significance
 2   that you asked Gtech to look at and they have agreed to
 3   do that and are in that process.
 4                 But in your opinion, there has been no
 5   anomaly or mistake that has impacted the players of
 6   Texas where they have played these games and taken a
 7   random generator or quick pick function.
 8                 DR. EUBANK:  That's correct.
 9                 CHAIR CLOWE:  I think the thrust of my
10   concern was, you know, have the players of Texas been
11   treated fairly.  And I think your answer is yes, but
12   there may be some issue here that has some level of
13   less-than perfection.  And we'd really like it to be as
14   close to perfection as possible.
15                 DR. EUBANK:  Yes, sir.  And that's --
16   that's -- that's -- if I could have known those words,
17   I could have cut 30 minutes out of it.
18                 CHAIR CLOWE:  You have struck me silent.
19   Thank you, gentlemen.
20                 Now?
21                 COMMISSIONER COX:  Yes, sir.
22                    AGENDA ITEM NO. XVII
23                 CHAIR CLOWE:  The Texas Lottery
24   Commission I move will go into executive session to
25   deliberate the appointment, employment, elevation (sic)
0091
 1   and/or duties of the executive director, acting
 2   executive director and/or deputy executive director, to
 3   deliberate the duties and evaluation of the Charitable
 4   Bingo Operations director and internal audit director
 5   and to deliberate the duties of the general counsel
 6   pursuant to Section 551.074 of the Texas Government
 7   Code, to receive legal advice regarding pending or
 8   contemplated litigation and receive legal advice
 9   pursuant to Section 551.071(1)(A) or (B) of the Texas
10   Government Code and/or to receive legal advice pursuant
11   to Section 551.071(2) of the Texas Government Code
12   including, but not limited to, Gametech International,
13   Inc. versus Greg Abbott, Attorney General of Texas et
14   al., Gametech International et al. versus Greg Abbott
15   et al., Charles Isbell versus Atkins et al., Red Men et
16   al. versus Gary Grief, Texas Lottery Commission versus
17   Joel Bowen and Associates, Inc., dba JB & Associates,
18   employment law, personnel law, procurement and contract
19   law, evidentiary and procedure law and general
20   government law, lottery operator contract, Mega
21   Millions game and/or contract.
22                 Is there a second?
23                 COMMISSIONER COX:  Second.
24                 CHAIR CLOWE:  Before we take the vote,
25   counselor, if we take up the Mega Millions game or --
0092
 1   and/or contract, do we need to ask for an exemption to
 2   deal with that contract?
 3                 MS. KIPLIN:  No.  The notice is solely to
 4   receive legal advice regarding.
 5                 CHAIR CLOWE:  So there's no deliberation
 6   of that point?
 7                 MS. KIPLIN:  No deliberation.
 8                 CHAIR CLOWE:  So this is within the
 9   notice?
10                 MS. KIPLIN:  Yes.
11                 CHAIR CLOWE:  And properly made as a
12   motion?
13                 MS. KIPLIN:  Yes.  It would be to receive
14   legal advice on that game and/or --
15                 CHAIR CLOWE:  Very good.  Very good.
16   Thank you.
17                 All in favor, please say "aye."
18                 COMMISSIONER COX:  Aye.
19                 CHAIR CLOWE:  Aye.
20                 The vote is two-zero.
21                 Texas Lottery Commission will go into
22   executive session.  The time is 1:35 p.m.  Today is
23   January 13th, 2006.
24                 (Executive Session from
25                  1:34 p.m. to 3:08 p.m.)
0093
 1                   AGENDA ITEM NO. XVIII
 2                 CHAIR CLOWE:  The Texas Lottery
 3   Commission is out of executive session.  The time is
 4   3:08 p.m.
 5                 Is there any action to be taken as a
 6   result of executive session?
 7                     AGENDA ITEM NO. XV
 8                 CHAIR CLOWE:  If not, let's move on to
 9   item number 15, consideration of, possible discussion
10   and/or action on external and internal audits and/or
11   reviews relating to the Texas Lottery Commission and/or
12   the Internal Audit Department's activities.
13                 Ms. Melvin?
14                 MS. MELVIN:  Good afternoon, Chairman,
15   Commissioner.  For the record, my name is Catherine
16   Melvin.  I'm the director of internal audit.
17                 I have one item of update regarding
18   internal audit.  I'm very pleased to bring to you the
19   results of a recently-completed quality assurance
20   review of the internal audit function.  The quality
21   assurance or peer review is required by professional
22   standards and by the Texas Internal Auditing Act.
23                 Our quality assurance review was
24   performed by Mr. Richard Tarr, T-A-R-R.  Mr. Tarr is a
25   highly-qualified, independent reviewer.  And if I may,
0094
 1   I'd like to read his overall opinion.
 2                 Based upon the work conducted, I concur
 3   with the conclusions made by the internal auditor that
 4   the internal audit activity of the Texas Lottery
 5   Commission fully complies with the Institute of
 6   Internal Auditors International Standards for the
 7   Professional Practice of Internal Auditing, the U.S.
 8   Government Accountability Office Government Auditing
 9   Standards and the Texas Internal Auditing Act.
10                 This opinion, which is highest of the
11   three possible ratings, means that policies, procedures
12   and practices are in place to implement the standards
13   and requirements necessary for ensuring the
14   independence, objectivity and proficiency of the
15   internal audit function.
16                 Okay.  And with that, I'd like to move on
17   to --
18                 COMMISSIONER COX:  Could I say something?
19                 CHAIR CLOWE:  Sure.
20                 COMMISSIONER COX:  Congratulations,
21   Catherine, to you and your staff.  That's a wonderful
22   report.
23                 MS. MELVIN:  Thank you, sir.  We're very
24   pleased.
25                 Regarding external audit, the State
0095
 1   Auditor's Office continues their work on two audits
 2   that are ongoing right now, the human resources audit
 3   and the required security audit.
 4                 In addition, the state auditors have sent
 5   notice of their intent to audit Lotto Texas.  We
 6   received that notice yesterday.  And so I would like to
 7   read their audit objectives regarding this audit as
 8   stated in their letter.
 9                 And in meeting with the auditors
10   yesterday, they indicated that it's always possible
11   that the scope may change.  But as of right now, these
12   are their stated objectives.
13                 The audit objectives are to determine
14   whether selected Lotto Texas activities are conducted
15   in accordance with commission rules, policies and
16   procedures.  This includes determining whether all
17   instances in which advertised jackpot amounts exceeded
18   estimated sales amounts have been identified, prize
19   payments were calculated and paid in accordance with
20   commission rules, policies and procedures, and that
21   amounts transferred to the Foundation School Fund were
22   calculated accurately and in accordance with Texas
23   Government Code 466.355.
24                 So we look forward to welcoming more
25   auditors to our office and certainly working with them
0096
 1   through that process.  Any questions about that?
 2                 COMMISSIONER COX:  Catherine, you did an
 3   audit of jackpots back to way back.
 4                 MS. MELVIN:  Yes, sir.
 5                 COMMISSIONER COX:  And you did an audit
 6   of transfers to the -- to the Foundation School Fund.
 7   Do you have any thoughts about why the state auditor
 8   might be looking at something that you've recently
 9   looked at and they have your report on?
10                 MS. MELVIN:  They -- I met with them.
11   And they certainly are going through my working papers
12   and will rely or will review my work and determine the
13   extent of reliance that they may place on that work.
14                 Certainly the State Auditor's Office has
15   the sole independence and authority to select whatever
16   scope they choose.  I believe that they made clear in
17   the beginning of the year that they would do some
18   additional work at the Lottery Commission, including an
19   audit of Lotto Texas, both jackpot prize payments and
20   the advertised amounts.
21                 COMMISSIONER COX:  So you have no
22   indication that this has anything to do with concern
23   about the adequacy of the work that you did?
24                 MS. MELVIN:  Oh, no, sir.  No, sir.  But
25   we -- you know, we'll make all of our working papers
0097
 1   available.  We're certainly happy to work with them and
 2   share with them the methodology we used.
 3                 COMMISSIONER COX:  Good.
 4                 MS. MELVIN:  Okay.  Finally, the State
 5   Auditor's Office recently completed an audit of the
 6   agency's financial statements for fiscal year 2005.
 7   I'd like to invite Mr. Michael Apperley from the State
 8   Auditor's Office to join me.
 9                 MR. APPERLEY:  Good afternoon, Chairman
10   Clowe, Commissioner Cox.  My name is Mike Apperly.  I'm
11   an audit manager for the Texas State Audit Consults.
12   I'm the contact manager for the Texas Lottery
13   Commission.
14                 So any questions you have on audits at
15   the Lottery, you can funnel those through me.  And
16   Catherine has my contact information.  I can get that
17   to you if you like.
18                 Also, I was the audit manager for the
19   annual financial report opinion that was recently
20   conducted.  This is the first year that the State
21   Auditor's Office has actually opined on the financial
22   statements.
23                 In the past, the Lottery Commission has
24   used public firms.  And the new state auditor decided
25   that he would like a little more control or input into
0098
 1   the audit process.  So we decided that we would this
 2   year opine on the financial statements ourselves.
 3                 The results of that audit basically were:
 4   We looked at the financial statements.  We looked at
 5   the internal control surrounding financial reporting.
 6   And we -- and we found there were no reportable
 7   conditions in the risk control or in the control
 8   systems over financial reporting.
 9                 We also found the financial statements
10   were free from material misstatements and basically
11   represented the financial position as of August 31st,
12   2005 and the financial activity that occurred in the
13   year leading up to August 31st, 2005.
14                 If you have any questions, I'd be glad to
15   answer those.
16                 COMMISSIONER COX:  No, sir.
17                 CHAIR CLOWE:  Mr. Apperly, we're very
18   happy that you're here and that you're designated as
19   our contact with the State Auditor's Office.
20                 And as I told you in private when
21   Catherine introduced you to me, we want to be very
22   responsive to any requests that you have, any
23   information or whatever you might need in the way of
24   your work.
25                 This agency, from time to time, is
0099
 1   criticized for many of the activities that it's
 2   involved in.  It is a controversial agency because of
 3   the work that we do.  And we're respectful of that
 4   criticism.
 5                 But at the same time, we feel that you
 6   are a great asset to this agency by way of your
 7   independent audit, so many things that you can look
 8   into and opine on.
 9                 So I want you to know that we're very
10   happy that you're here and that we would like to work
11   closely with you.  And we look forward to your reports
12   on any and all subjects that you might care to audit
13   this agency's activities.
14                 MR. APPERLEY:  I appreciate that.  Just
15   so that you know, we have gotten a tremendous
16   cooperation from the agency.
17                 And also to answer one of your earlier
18   questions, Commissioner Cox, on the reasons for doing
19   Lotto Texas this year even though Catherine's shop has
20   done internal reviews -- two internal reviews have been
21   done, we felt it was appropriate at this time to have
22   an independent look.
23                 Catherine is an independent function, the
24   internal auditors.  But the public doesn't always see
25   internal audit as independent.  Sometimes we may be
0100
 1   able to get a little more assurance that way.
 2                 We have no concerns about Catherine's
 3   work.  Everything we've looked at so far is great.  We
 4   just felt that it might -- the agency may benefit in a
 5   public manner having the State Auditor's Office.  And
 6   we'll use whatever work we can from Catherine's
 7   previous work.
 8                 COMMISSIONER COX:  And let me just say,
 9   Mr. Apperley, that in no way was I questioning the
10   state auditor's decision.  I was rather asking
11   Catherine what it might be in-house.
12                 MR. APPERLEY:  Sure.  I understand.
13                 CHAIR CLOWE:  And Catherine, you met Mr.
14   Sadberry, I understand.
15                 MS. MELVIN:  Yes, I did today for the
16   first time.
17                 CHAIR CLOWE:  Great.  And, of course, as
18   one of the direct reports to the commissioner, you will
19   work independently of him as does Billy, as another
20   direct report to the commissioners.
21                 But we would hope that you would work
22   with him.  And I know that he will be responsive to
23   whatever requests that you might have relative to
24   audits in that manner of activity.
25                 As I said in public earlier, Mr. Sadberry
0101
 1   has served with distinction as a commissioner here.
 2   And my anticipation is that he will do an excellent job
 3   as the acting executive director.  And I hope that you
 4   look forward to knowing him better and working with him
 5   in the future.
 6                 MS. MELVIN:  I certainly do.  Thank you,
 7   Commissioner.
 8                 CHAIR CLOWE:  Great.  Thank you very
 9   much.  Thank you both.
10                 MS. MELVIN:  Thank you.
11                 MR. APPERLEY:  Thank you.
12                     AGENDA ITEM NO. II
13                 CHAIR CLOWE:  And now Mr. Atkins, we're
14   back to item number two on the agenda, report, possible
15   discussion and/or action on the third quarter bingo
16   conductor information.
17                 COMMISSIONER COX:  All the way to number
18   two.
19                 CHAIR CLOWE:  All the way to number two.
20                 MR. ATKINS:  Thank you, Mr. Chairman,
21   Commissioner Cox.  Phil Sanderson was going to give
22   this presentation.  He had previously scheduled a
23   medical appointment that he had to go to.
24                 So with your indulgence, he has --
25                 CHAIR CLOWE:  I think he just got worn
0102
 1   out.
 2                 MR. ATKINS:  He -- if he is worn out,
 3   it's because he spent most of the day trying to brief
 4   me on this.  So hopefully I will be able to provide you
 5   this information.
 6                 This slide, Commissioners, will show some
 7   of the previous information that has been reported to
 8   you in earlier presentations on quarterly information.
 9   You'll note that we've been reporting for some time now
10   an increase in gross receipts that have been attributed
11   to the new style of instant pull-tabs.
12                 We've been reporting prizes have been
13   increasing faster than gross receipts due to the
14   increase in prize percentages.  That is continuing.
15   Net revenue's been declining as a result of the
16   increasing prize payout percentages.
17                 Total expenses are remaining fairly
18   constant.  Reported distributions have been following
19   the decline in net revenue.  However, as we have been
20   reporting, they have consistently been exceeding the
21   statutorily-required charitable distribution.
22                 Some of the other information that we
23   have been looking at in trends include quarterly and
24   annual trends for gross receipts, attendance occasions
25   and conductors reporting.
0103
 1                 And I would like to make sure you're
 2   aware of that we do have the opportunity to work very
 3   closely with the Office of the Controller and their
 4   staff and we're appreciative for all their assistance
 5   in analyzing this information.
 6                 This graph shows, as we have reported in
 7   the past, that gross receipts have a tendency to be the
 8   highest in the first quarter of the year and then they
 9   decline throughout the year.
10                 Gross receipts for the first three
11   quarters of 2005 are the highest that they've been for
12   each of the quarters for the five-year period that
13   we've been tracking.  Gross receipts are actually on
14   track this year to be the highest that they've been
15   during this five-year period.  In fact, they are on
16   track to be higher than gross receipts have been since
17   1995.
18                 Attendance, for trend purposes, is also
19   highest in the first quarter of each year.  However,
20   unlike gross receipts, 2005 will probably be the lowest
21   reported attendance during the five-year period that
22   we've been following.
23                 In fact, gross -- or attendance will
24   probably be the lowest since it was reported in 1985.
25                 COMMISSIONER COX:  Billy, what if you
0104
 1   looked at number of sessions?  Is that a number that
 2   you're going to show us?
 3                 MR. ATKINS:  Yes, sir.
 4                 COMMISSIONER COX:  Okay.  Thank you.
 5                 MR. ATKINS:  What I did want to mention
 6   on this slide is there has been a trend of average
 7   spend per players continuing to increase over the past
 8   five years.  That trend continues with this quarter.
 9                 One of the things I did want to mention,
10   Commissioner Cox, is when we gave this presentation, I
11   believe it was September of last year on the second
12   quarter financial figures, you made the comment that --
13   and you'll see it later in this presentation.
14                 In a situation where attendance, number
15   of occasions, number of conductors continues to decline
16   while you see a continual increase in the average spend
17   is probably a situation that can't continue for too
18   long.  You had asked at the time if we had received any
19   input from the industry.
20                 We haven't.  Since that is a trend that
21   we are continuing to see, we do plan on having this
22   matter before the Bingo Advisory Committee at their
23   meeting in February and attempt to get some input from
24   them for you.
25                 The average number of players, again
0105
 1   you'll see a trend where it is highest in the first
 2   quarter and decreases throughout the year, again with
 3   2005 being one of the lowest years for the period that
 4   we've been observing.
 5                 I believe, Commissioner Cox, this was the
 6   slide that you were asking about, the number of
 7   occasions.  You will see that that has been decreasing
 8   for each quarter over the past five years.  Number of
 9   occasions tend to remain fairly consistent throughout
10   the year with a slight noticeable decrease in the
11   fourth quarter.
12                 Average number of occasions attend --
13   again, tend to remain fairly consistent throughout the
14   years.  We do see I guess what we could identify as
15   some sort of anomaly in 2005 where we see a slight
16   increase for the first quarter.  I don't know if we
17   have identified anything at this point that would
18   explain that increase.
19                 Again as I mentioned earlier, we do see a
20   continued decline in total number of conductors
21   reporting.  We do see the continued trend of the number
22   of conductors reporting increasing slightly throughout
23   the year.  But for the total of 2005, again, you will
24   see that number being the lowest that it has been for
25   the five-year period we've been tracking.
0106
 1                 COMMISSIONER COX:  Billy, I have a couple
 2   of thoughts.  One, would you let us know next time you
 3   report this how it could be that conductors reporting
 4   increases through the year and everything else
 5   decreases through the year?  That's counterintuitive.
 6                 And secondly, the only way you didn't cut
 7   it that I think might be interesting is average number
 8   of people attending each session.  Since you've got
 9   number of sessions going down and you've got number of
10   people going down, that would tell us what's going down
11   faster.
12                 MR. ATKINS:  I'd be happy to.
13                 CHAIR CLOWE:  Fewer people spending more
14   money less often.
15                 COMMISSIONER COX:  We had some of that in
16   the Lotto Texas -- I mean in the demographic study
17   where some of the games that had the lowest percentage
18   of participation had the highest spend.  And I think
19   that there will be some interesting things for Gary and
20   his staff to analyze there, as well.
21                 CHAIR CLOWE:  And I think, you know,
22   we're dealing with the attractiveness of what's going
23   on there to the players in both entities.  And we're
24   able to make the instant games attractive.  We're
25   seeing that, which is surprising to me.  But it's
0107
 1   common to other lotteries.
 2                 The online games are very mixed in the
 3   results.  But clearly that message is in bingo.  And in
 4   talking with members of the BAC, you know, they're
 5   requesting for more variety, more variance, things that
 6   make it more attractive, which is beyond the scope of
 7   this commission.
 8                 MR. ATKINS:  I think another similarity,
 9   Mr. Chairman, between bingo and lottery is, again,
10   we've -- we've seen a tremendous increase in the
11   interest in pull-tabs and a pretty significant decrease
12   in regular bingo to the extent that we've had a number
13   of organizations report to us that their pull-tab sales
14   are actually subsidizing their regular bingo in that
15   they may not have the attendance to justify awarding
16   the statutorily-authorized $2500 maximum prize payout
17   per occasion.
18                 But they continue to do that, drawing on
19   their sales for pull-tabs to -- to -- to fund those
20   prizes.
21                 CHAIR CLOWE:  Thank you.
22                 MR. ATKINS:  Now Commissioners, we're
23   going to get to some of the specific information
24   reported for the third quarter of 2005.
25                 COMMISSIONER COX:  Now Billy, you're not
0108
 1   under any delusion that we can read that, are you?
 2                 MR. ATKINS:  My copy looks great.  I
 3   don't know if it would help if the lights were dimmed
 4   or not, but this information is also contained --
 5                 COMMISSIONER COX:  I think it's in our
 6   notebook.
 7                 MR. ATKINS:  -- in your notebook.
 8                 COMMISSIONER COX:  Now -- which I now
 9   can't read.
10                 MR. ATKINS:  Commissioners, gross
11   receipts were reported to be 55 million dollars.
12   Prizes were at 17 million dollars, which equals 75
13   percent of gross receipts.  Adjusted gross receipts
14   were almost 31 million dollars.
15                 Net revenues for the quarter were 6.4
16   million dollars or 4.1 percent of gross receipts.
17   While the required charitable distribution under the
18   statute was 2.1 million dollars, the actual reported
19   charitable distribution was 7.4 million dollars.
20                 This slide will compare the third quarter
21   to the third quarter of each of the preceding years.
22   You'll see gross receipts are up 9.5 percent over the
23   third quarter of 2001.  Prizes are up almost 16
24   percent.
25                 However, adjusted gross receipts are down
0109
 1   five percent.  That revenue is down 1.8 million dollars
 2   or almost 26 percent.  And charitable distributions are
 3   down 7.6 percent.
 4                 These next slides are some that you have
 5   seen in the past that have been updated.  You'll see
 6   that these are the prize payouts compared to gross
 7   receipts.  Prize payouts for regular bingo reached 76
 8   percent, which is the highest that it's been since
 9   1996.  And prize payouts for instant bingo were 73.5
10   percent.  And that is the highest it has ever been.
11                 This chart indicates disbursements other
12   than prizes as a percentage of gross receipts, the
13   highest being the rent payments at 6.2 percent, salary
14   for callers, cashiers and ushers at almost 5.8 percent,
15   charitable distributions at 4.7 percent, and lease
16   payments to distributors at 3.2 percent, with the
17   remainder of the expenses all coming in at less than
18   two percent each.
19                 This pie chart is a graphical indication
20   of what percent each expense is as it relates to total
21   expenses.  Again, this does not include prize payouts.
22   The salaries is the highest single category with the
23   salaries for janitorial staff, callers, cashiers,
24   ushers, security staff, legal and accounting coming in
25   at more than 50 percent of total expenses.
0110
 1                 If you include the rent payments for --
 2   it brings the total to 92 percent of total expenses for
 3   those two categories.
 4                 Commissioners, that concludes this
 5   presentation.  I believe there are also some additional
 6   graphs in your notebook.  I'd be happy to try and
 7   answer any questions about those if you have them.
 8                 CHAIR CLOWE:  I think Phil did a good
 9   job.  Thank you, Billy.
10                 MR. ATKINS:  Thank you, sir.
11                    AGENDA ITEM NO. III
12                 CHAIR CLOWE:  Next item three,
13   consideration of a petition for rulemaking to amend 16
14   TAC 402.600 pertaining to bingo reports.
15                 Ms. Joseph?
16                 MS. JOSEPH:  Good afternoon.  My name is
17   Sandra Joseph, assistant general counsel.  Steven
18   Fenoglio has submitted a petition for rulemaking to
19   amend 16 TAC Section 402.600 pertaining to bingo
20   reports.
21                 Mr. Fenoglio has requested that the
22   commission amend the rule because, quote, Subsection L
23   is unreasonably restrictive.  The current Subsection L
24   of the rule requires revocation or denial of a
25   conductor's license when a licensee has failed to
0111
 1   timely pay the prize fee or rental tax due three times
 2   within a 12-month period.
 3                 The proposed rule amendment provides for
 4   revocation or denial if there is a failure to pay three
 5   times within four consecutive quarters and -- this is
 6   the significant new part -- a final jeopardy
 7   determination has become final for three of the four
 8   consecutive quarters.
 9                 It's anticipated that adoption of this
10   amendment would reduce the number of revocations and
11   denials for failure to timely pay because it would
12   provide a grace period between the due date and the
13   date a final jeopardy determination becomes final.
14   Final will be at least 20 days after service of a
15   determination -- and that's a determination of the
16   amount due -- unless a redetermination is made.
17                 So in other words, they would have at
18   least 20 additional days.  Furthermore, if a
19   redetermination were requested, the commission could
20   consider facts developed at a hearing and deciding
21   whether to make a determination final.
22                 The new proposed language also addresses
23   reports filed by other types of licensees.  After
24   discussions with staff in which staff expressed a
25   desire that the proposed rule amendment address other
0112
 1   type of licensees, Mr. Fenoglio submitted new language
 2   that similarly addresses reports filed by
 3   manufacturers, distributors and system service
 4   providers.
 5                 According to the Administrative
 6   Procedures Act, the commission must either deny a
 7   petition for rulemaking in writing stating the reasons
 8   for denial or initiate the rulemaking process no later
 9   than 60 days after the petition is filed.  Sixty days
10   from the date of Mr. Fenoglio's initial petition in
11   this situation is January 29th of this month of this
12   year.
13                 The recommended proposal does include
14   staff modifications to Mr. Fenoglio's proposed language
15   for Subsection L in order to add further clarification.
16   Mr. Fenoglio has reviewed this -- this clarifying
17   language and has stated that he has no objection to it.
18                 The submission prepared for the Texas
19   Register, in the event you decide to initiate
20   rulemaking proceedings, does include a notice for
21   public hearing to be held on the proposed rule at 11
22   a.m. on February 8th.
23                 I recommend that the commission initiate
24   the rulemaking process by publishing the proposed rule
25   in the Texas Register in order to receive public
0113
 1   comments for a period of not less than 30 days.
 2                 Mr. Atkins may wish to comment on this.
 3   And I have Ms. Terry Shankle, who manages that process,
 4   in case you have any specific questions.
 5                 CHAIR CLOWE:  Should we hear from Mr.
 6   Atkins?
 7                 COMMISSIONER COX:  Sure.
 8                 MR. ATKINS:  Thank you, Commissioners.
 9   Mr. Fenoglio was here earlier in the day.  And he had a
10   previous commitment that he had to leave for, so he
11   asked that we let you know that.  Otherwise, he would
12   have been present to speak on this matter.
13                 The only thing that I wanted to touch on
14   very briefly was Ms. Joseph, in her presentation,
15   referenced the grace period that the organizations
16   would have.  And I want to make sure it's understood
17   that, even with that grace period, while the agency may
18   not take action to revoke those licenses, those
19   licensees will still be subject to a statutory penalty
20   for failure to timely file or timely pay the prize fee
21   due or the rental tax due.
22                 Additionally, when Mr. Fenoglio brought
23   his proposal forward, we were mindful of some comments
24   that administrative law judges have made in their
25   proposals for decisions, as well as comments that you
0114
 1   had made based on organizations that have come before
 2   the commission and in explaining the reason for their
 3   failure to file.
 4                 Again, we believe this language will give
 5   the agency a little more flexibility for organizations
 6   that have not had a final determination made.  And
 7   also, again, it was the staff's desire, since we were
 8   looking at this rule, to be as consistent within the
 9   rule as we could.
10                 And the requirements of the rule, as they
11   existed regarding actions taken against licensees to --
12   for failure to timely file, only apply to conductors
13   and lessors.  We do have requirements that, as
14   Ms. Joseph mentioned, manufacturers and distributors
15   also file quarterly reports.
16                 So in order to be consistent among the
17   different license types, that was our reasoning for
18   including the language for manufacturers and
19   distributors also to timely file quarterly reports and
20   possible actions and sanctions for failure to do -- to
21   do so.
22                 COMMISSIONER COX:  Billy, that was an
23   excellent explanation.  And I think you answered every
24   question I have save one.
25                 Do you believe that the penalties are
0115
 1   sufficient to keep people from just playing games with
 2   you, slow-paying you, just making you file the jeopardy
 3   assessment, all that stuff similar to a mortgagor who
 4   runs you to the 90-day period, makes you file a notice
 5   of foreclosure before he pays?
 6                 Are we going to get into a whole bunch of
 7   that kind of stuff because our penalties just aren't
 8   big enough?
 9                 MR. ATKINS:  Well, again, the penalties
10   are set by statute.  I -- you know, Commissioner Cox, I
11   can't guarantee that there's someone out there that,
12   you know, won't try and play games.
13                 Our process as it relates to this matter
14   I believe is pretty tight.  And it's pretty well
15   automated.  So I don't believe it is a huge burden for
16   the staff to get first the -- the billing out and then
17   ultimately the final determination.
18                 I will tell you it would seem kind of
19   counterintuitive to me that organizations would want to
20   be incurring these administrative penalties since you
21   know all of the comments that have been made in
22   conjunction with the administrative penalty rule that
23   we've put forward and, you know, a desire by
24   organizations not to pay the penalties.
25                 COMMISSIONER COX:  So one of the things I
0116
 1   think, Mr. Chairman, that is nice about this is we've
 2   had a couple of cases in the three years I've been here
 3   where I really wanted to do something to give relief to
 4   the operator and we didn't have authority to do that.
 5   So I think from that standpoint it works well.
 6                 CHAIR CLOWE:  Great.  Sandy, did I hear
 7   you say that 60 days expires January the 26th?
 8                 MS. JOSEPH:  January the 29th.
 9                 CHAIR CLOWE:  29th?  So why did we get
10   this on January the 13th?
11                 MS. JOSEPH:  His initial petition was
12   filed on November 30th.  Staff reviewed at that time.
13   We had some -- as we described, some modifications that
14   we wanted to discuss with him.  He refiled on December
15   6th.
16                 There was not time to -- for you to --
17   for the staff to prepare it and form an opinion and
18   recommendation for the December meeting.  So this is
19   the first opportunity that we have to present it to
20   you.
21                 CHAIR CLOWE:  It puts us in a box
22   timewise -- not going to the merits of this issue --
23   that it's going to have to be acted on by the 29th.
24   This is the 13th and Steve Fenoglio is here.
25                 He couldn't be heard this morning.  He's
0117
 1   not here this afternoon.  If a commissioner wanted to
 2   question him about it, it wouldn't be possible.
 3                 MS. JOSEPH:  Right.  That is a statutory
 4   requirement that it be acted on within 60 days.  And
 5   because the commission meets once a month, it does
 6   limit the opportunities to present it for your
 7   consideration.
 8                 CHAIR CLOWE:  I understand that it's for
 9   good reason.  But I want to point out the fact that, if
10   a commissioner said, well, you know, I really want to
11   hear from him on this issue, we'd have to deny it for
12   that reason, I guess.  And then it would have to be
13   refiled and reprocessed.
14                 MS. JOSEPH:  That could -- yes, that
15   could certainly happen.
16                 CHAIR CLOWE:  Be mindful about that, if
17   you will.  I don't like seeing the commissioners asked
18   to deal with issues almost at the last minute.  As much
19   as possible, give the commissioners as much opportunity
20   to study and to read and to ask questions and to refer
21   back for clarification as is possible.
22                 MS. JOSEPH:  Certainly.
23                 CHAIR CLOWE:  Keep that in mind.  I move
24   the adoption of the staff recommendation to publish
25   this rule for public comment.
0118
 1                 COMMISSIONER COX:  Second.
 2                 CHAIR CLOWE:  All in favor, please say
 3   "aye."
 4                 COMMISSIONER COX:  Aye.
 5                 CHAIR CLOWE:  Aye.
 6                 Opposed?  No.
 7                 The vote is two-zero in favor.
 8                 Thank you, ladies.
 9                    AGENDA ITEM NO. IV
10                 CHAIR CLOWE:  Next we'll move to number
11   four, report, possible discussion and/or action on
12   lottery sales and revenue, game performances and game
13   closures, new game opportunities, including Powerball,
14   and trends.
15                 Ms. Pyka?
16                 MS. PYKA:  Good afternoon, Commissioners.
17   This morning or -- for the record, my name is Kathy
18   Pyka, controller for the Texas Lottery Commission and
19   with me to my right is Robert Tirloni, products
20   manager.
21                 Our first chart this afternoon --
22                 CHAIR CLOWE:  Kathy, is your mike on?
23                 MS. PYKA:  Yes.  I -- I move around too
24   much.
25                 CHAIR CLOWE:  Okay.
0119
 1                 MS. PYKA:  The first chart this afternoon
 2   reflects revenue from sales and net revenue to the
 3   state through week ending December 31st, 2005.
 4                 This report reflects 18 weeks of fiscal
 5   year 2006 activity.  Total sales for the 18-week period
 6   amounted to 1.2 billion while estimated net revenue to
 7   the state for this period was 314.1 million.  Net
 8   revenue to the state reflects a 3.1 percent increase in
 9   comparison to 304.6 for the same period in fiscal year
10   2005.
11                 Prize expenses percentage of sales is
12   62.6 percent as compared to 62.4 percent for the same
13   period in fiscal year 2005.
14                 Our next slide includes fiscal year 2006
15   year-to-date sales by game.  As noted on this slide, 75
16   percent of sales or 923.8 million was for instant
17   tickets with 7.7 percent of sales or 95.2 million for
18   Pick 3, followed by 6.4 percent of sales and 78.8
19   million of Mega Million, followed by 6.1 percent of
20   sales and 75.6 million from Lotto Texas.
21                 Our next slide simply provides a
22   graphical presentation of the 1.2 million -- 1.2
23   billion year-to-date sales figure.
24                 MR. TIRLONI:  Good afternoon,
25   Commissioners.  For the record, my name is Robert
0120
 1   Tirloni.  I am the products manager for the commission.
 2                 This next pie chart graphically
 3   represents our instant sales broken down by price
 4   point.  As Kathy mentioned, we -- you do see the
 5   instant sales total of 923.8 million.
 6                 Our leading sales price point is the --
 7   is the five-dollar price point, followed by the
 8   two-dollar price point.  And I want to note a change
 9   this month.  Typically, we've seen the one-dollar price
10   point coming in behind the two-dollar price point.
11                 This month it is the 10-dollar price
12   point.  And we have looked at that and we are
13   attributing that to the fact that our World Poker Tour
14   Texas Hold 'Em scratch-off game has been a very strong
15   performer in the month of December as has one of our
16   holiday scratch-off games, which was a -- a
17   10-dollar -- a 10-dollar game, as well.
18                 So those two games combined have
19   increased the 10-dollar price point portion of the
20   total pie.
21                 COMMISSIONER COX:  Robert, the Texas Hold
22   'Em game you say is pretty hot.
23                 MR. TIRLONI:  Uh-huh.
24                 COMMISSIONER COX:  Have you looked at --
25   I know you've looked at.  Do you have enough tickets?
0121
 1   Are you ordering reprints?  How does that work?
 2                 MR. TIRLONI:  Actually, we have reprinted
 3   the game.  And the reprint will start at the beginning
 4   of next week.
 5                 Commissioner, back in -- I believe it was
 6   the December meeting when I showed you that instant --
 7   that instant pie chart, Commissioner Cox, you asked us
 8   to see if we could take a look at online games and
 9   online sales in a -- in a similar fashion.
10                 And so we have gathered some -- some data
11   on that.  Before I show you those slides, I want to --
12   I want to give a brief example of some differences
13   between the way instant tickets are sold and online
14   tickets are sold.
15                 A player can go into a lottery retailer
16   today and purchase, let's say, a 30-dollar scratch-off
17   ticket that's available in exchange for his or her 30
18   dollars.  That player would obviously receive the
19   30-dollar ticket they chose.
20                 Now that same player can then choose,
21   let's say, to spend 30 dollars on Lotto Texas.  And
22   let's say it's for tomorrow night's drawing, as well,
23   for the Saturday drawing.  The big difference is that
24   player can spend that 30 dollars in many different
25   ways.
0122
 1                 And -- and based on that, we get
 2   different transactions.  So, for example, the player
 3   can spend that 30 dollars.  They can get six tickets
 4   with five plays on each ticket or they can receive 10
 5   tickets with three plays on each ticket or, if they so
 6   chose, they could receive 30 tickets with one play on
 7   each.
 8                 The player cannot spend all 30 dollars on
 9   one ticket for tomorrow night's drawing.  The player
10   could also choose to spend 30 dollars and that player
11   could choose to extend their play.  So they could take
12   their numbers and, not only play it for tomorrow
13   night's drawing, but they could play for advance draws.
14   And we call that multidraw.
15                 So, for example, they could get one
16   ticket with five plays for the next six drawings or
17   they could get one ticket with three plays for the next
18   10 drawings.  The purpose of this -- of these examples
19   is to give you the idea that there are many ways that
20   the same amount of dollar and spend can create numerous
21   transactions -- excuse me -- and various transaction
22   amounts.
23                 And so when we look at these upcoming
24   slides on online transactions, it's not really an
25   apples-to-apples or a direct comparison to the way that
0123
 1   we look at the instant sales.
 2                 COMMISSIONER COX:  So we might be able to
 3   derive something over time on a relative basis, but we
 4   really don't have much on an absolute basis to look at.
 5                 MR. TIRLONI:  I think that's correct.  I
 6   think, when we look at the slides here in a minute,
 7   there are some conclusions that we can definitely draw
 8   from them.  And I'm working with Kathy's staff on this.
 9                 And I also want to say that the data
10   we're about to look at does include multidraw data.  So
11   we're also working with Kathy's staff and Gtech to --
12   to parse that out so -- to remove multidraws so we kind
13   of have a better idea of what's going on at the base
14   level of the different games.
15                 So basically, purchases for a current
16   draw, current drawing, are capped at five dollars per
17   transaction.  And that's due to the fact that the play
18   slip has -- has five plays per ticket.
19                 Now to add another twist, Mega Millions
20   and Pick 3 are somewhat different.  Mega Millions has
21   the megaplier feature.  So there's the opportunity to
22   spend more on a transaction on -- on Mega Millions if
23   you're playing megaplier.  And Pick 3 is kind of in a
24   class by itself because it -- it allows varying wager
25   amounts.
0124
 1                 And lastly -- again, I touched on this a
 2   minute ago.  But purchases that we're seeing right now
 3   in this data that are over five dollars per
 4   transaction, except for Mega and Pick 3, those have to
 5   include some type of multidraw in them.
 6                 So let's take a look at this first slide.
 7   There's two columns here.  And the column on the left
 8   shows the percentage of transactions by transaction
 9   level.  So, for example, the green -- and another thing
10   to remember is that Pick 3 does allow for 50-cent
11   wagers.
12                 So the green shows wagers or transactions
13   from 50 cents to one dollar.  And the red shows
14   transactions from $1.50 to two dollars.  So
15   basically -- and this whole thing represents 114
16   million transactions.  So basically what this is
17   telling us is that over 60 percent of the 114 million
18   transactions basically took place at the lower wager
19   levels.
20                 If you transfer that over to this other
21   side, what it shows you is that 60 percent of those 114
22   million wagers really translate on this column to
23   sales.  So those wagers make up 29 percent of the
24   sales.
25                 Just to follow along with that, now I'm
0125
 1   going to the high end of the transaction amount.  So
 2   now I'm in the lavender, kind of purple area right
 3   here.  I'm looking at $4.50 and five-dollar
 4   transactions.  And then I'm looking at five-dollar
 5   transactions and above.
 6                 And again, this -- this has to be
 7   multidraw based on the way we're looking at the data
 8   right now.  So if you look at this, 23 percent of the
 9   wagers are at the high end of the scale, so to speak.
10   And those, when you come over to this column, are
11   making up more than 53 percent of the sales.
12                 And I have some subsequent slides that
13   actually break it down by game that I think are also
14   interesting and help paint even a clearer picture.
15                 COMMISSIONER COX:  I'm trying to figure
16   out:  What does that tell you, Robert?
17                 MR. TIRLONI:  I think, when you look at
18   it by game, I think it -- I think it --
19                 COMMISSIONER COX:  Okay.
20                 MR. TIRLONI:  -- tells us something.
21                 So now basically this is that same
22   information and we've broken it down by game.  So as we
23   go across, we've got Lotto, Pick 3, Cash Five, Two Step
24   and Mega Millions.
25                 And again, the green bar is that
0126
 1   50-cent -- well, for Lotto it's one dollar.  But on the
 2   Pick 3 column, it's -- it's 50 cents and one dollar.
 3   And you see again for each game that base-level
 4   transaction is yielding your highest transactions.  The
 5   next highest transaction for most of the games is that
 6   five-dollar transaction.
 7                 Now as I talked about us parsing out
 8   advanced play or multidraw play, another thing we're
 9   working on with Gtech and Kathy's staff is we need to
10   parse out megaplier.
11                 Right now, when we're looking at this
12   Mega Millions data, you'll see for Mega Millions the
13   two-dollar red bar is an anomaly when you look at it
14   compared to the other games.  But that's because
15   megaplier is lumped in here.  And we're working to pull
16   that out so we can look at Mega Millions base sales and
17   then megaplier sales individually.
18                 What I think this tells us, obviously, we
19   have the highest transaction levels at the base level
20   amounts.  To increase sales, we -- we obviously would
21   like to increase the number of transactions at the
22   higher amounts.  That's the first thing.
23                 I think the other thing is -- an
24   opportunity is to introduce a game that has a higher
25   price point associated with it.  So maybe that's a
0127
 1   two-dollar, maybe that's a five-dollar online game
 2   that -- so that, when you see those transactions at the
 3   base level, the actual base level price of the game is
 4   higher than -- than one dollar.
 5                 So I think -- I think what that shows us
 6   is that there's obviously opportunity for us on the
 7   online -- in the online product category.
 8                 COMMISSIONER COX:  Is that your last
 9   slide?
10                 MR. TIRLONI:  I have one -- I have one
11   more, but basically all it does is it takes these
12   transactions and it translates them to sales.  And --
13   and that's this slide.
14                 MR. GRIEF:  Commissioner, I think that's
15   -- that's a very important slide that's up there now.
16   It shows you that, while the transaction -- the number
17   of transactions may be small in relationship to the
18   one-dollar transactions, the revenue that's gained is
19   much more significant at the high-dollar transactions.
20                 This -- this whole thing told me a couple
21   of things intuitively.  Number one, we have work to do
22   to extract out some things that might be skewing this
23   data.  We're going to do that and come back with better
24   information.
25                 But it tells me that there may be, as
0128
 1   Robert says, some potential for some higher price
 2   points at the online game level that people seem to be
 3   willing to lay out that amount of money for something
 4   when they buy online games.
 5                 Perhaps they're playing multidraw.
 6   Perhaps they're playing megaplier.  But they're willing
 7   to pay more than one dollar for the opportunity to
 8   play.  And if we can develop an attractive game at the
 9   right price point, it seems like there may be a market.
10                 COMMISSIONER COX:  Gary, I seem to
11   remember that the first lottery were adopted maybe in
12   the late '60s or the late -- or the early 1970s and
13   they were probably selling tickets for a dollar.
14                 And that dollar is probably worth 50
15   cents now.  And I wonder when somebody is going to say,
16   as they did in Las Vegas where there used to be lots of
17   one-dollar tables and now it's very hard to find
18   anything under a five-dollar table, that the one-dollar
19   ticket is obsolete.
20                 Has any state done that yet to your
21   knowledge?
22                 MR. GRIEF:  There have been attempts that
23   we've noticed and looked into in other states to do
24   online games.  In fact, in our own state, we have the
25   Texas -- which game is it, Robert?
0129
 1                 MR. TIRLONI:  We had -- we had an online
 2   game that was a two-dollar price point.  It was Texas
 3   Million.  It started in '98 and ended in 2001.  That
 4   was our attempt -- our first attempt at a two-dollar
 5   price point.
 6                 MR. GRIEF:  But there's something that we
 7   and other states haven't done with -- and I don't know
 8   exactly what that is.  But those games have not done
 9   well, not just in Texas, but in other states as well.
10                 So we just need to find the right mix,
11   the right product, the right price point, the right
12   prize payout percentage, the right game to attract that
13   type of player who would rather play at the five-dollar
14   level than the one-dollar.
15                 COMMISSIONER COX:  And this -- this gives
16   us valuable information, I believe, that says that the
17   five-dollar player and more, five-and-more-dollar
18   player is very common and very important.
19                 MR. GRIEF:  And again intuitively, we
20   know that to be the case, if for no other reason than
21   our instant product, that they're out there.
22                 MR. TIRLONI:  Commissioner, we are
23   watching and tracking a game that in another state, in
24   Pennsylvania, they just ran an online game.  It was a
25   promotional game.  It was a short-term game that they
0130
 1   ran from sometime in the mid-fall and kind of ended
 2   right around the end of the calendar year.
 3                 They had a special drawing on New Year's
 4   Eve.  I believe they were selling those tickets for --
 5   I want to say it was 10 dollars a ticket.  So there
 6   are -- there are some states that have just recently
 7   stepped out there.
 8                 And we're -- we're absolutely looking at
 9   those to what -- again, see if that opportunity
10   translates to us here in Texas to see if we can't
11   capitalize on that.
12                 CHAIR CLOWE:  Seems to me that,
13   historically, we identified that you've got a fewer
14   people playing more often.  And that's a trend that
15   generally is in the wrong direction.  But if you raise
16   your price point, you've got to raise the payout.
17   Don't you?
18                 MR. TIRLONI:  Typically.  On the instant
19   sides -- on the instant ticket side of the house,
20   that's typically what -- what's happened.
21                 CHAIR CLOWE:  That's what's happened.
22                 MR. TIRLONI:  Because the rationale would
23   be, if you're going to ask somebody to spend more, you
24   need to, again typically, offer a more attractive
25   prize.  And in order to do that and build a successful
0131
 1   game that allows you to offer that prize, you have to
 2   have more in the -- in the prize pool available to do
 3   that.
 4                 CHAIR CLOWE:  You have to incent them.
 5                 MR. TIRLONI:  Yes, sir.
 6                 COMMISSIONER COX:  Mr. Chairman, I will
 7   tell you that we've got all kinds of studies going here
 8   testing that hypothesis.
 9                 CHAIR CLOWE:  And then you got to have
10   Brazil where thousands of people win.  Have we got
11   information on that lottery?
12                 MR. TIRLONI:  Off the top of my head, I
13   want to say no.  I don't believe that we do.
14                 CHAIR CLOWE:  I read in the newspaper
15   about that where thousands of people win.  They don't
16   win millions, but there are thousands of winners.
17                 I'd like for you to, if you can, research
18   that.  See what the total payout is and kind of overlay
19   some of this matrix on it to see how many winners there
20   are and what the average payout is and what the range
21   is per winner and that sort of thing.
22                 MR. TIRLONI:  We will absolutely do that.
23                 CHAIR CLOWE:  We want to keep this
24   research going.
25                 MR. TIRLONI:  Yes, sir.  I have just a
0132
 1   few more slides as part of this presentation,
 2   Commissioners.
 3                 I do have a brief update on Mega
 4   Millions.  Since we last met in mid-December on the
 5   15th, there have been two jackpot tickets sold.  There
 6   was an $88 million jackpot ticket sold in California
 7   for the December 30th drawing.  That was their third
 8   jackpot ticket sold since they joined the game in June.
 9                 And then there was a $15 million jackpot
10   ticket sold in Ohio just a week ago on January 6th.
11   That was a -- as I said, a $15 million jackpot right at
12   the beginning of the roll cycle.
13                 COMMISSIONER COX:  What do you bet the
14   coverage was on that $15 million jackpot?
15                 MR. TIRLONI:  We actually looked into
16   that.  We asked Gtech to see if they could calculate
17   what that was.  And we're -- we're estimating it was
18   about 7 to 8 percent.
19                 COMMISSIONER COX:  I hope they're not in
20   for a run like we had a few years back.
21                 MR. TIRLONI:  I hope not.  And that's all
22   we have for -- for this presentation.
23                 Mr. Chairman, I did want to follow up and
24   tell you I know last month we talked about instant game
25   closings.  And you asked us to gather as much
0133
 1   information as we could on that.
 2                 We are doing that.  Our research group --
 3   our internal research group is contacting all the other
 4   states.  And we're starting to get responses and we'll
 5   be putting that together.  And I'm hoping we can have
 6   that for February for you.
 7                 CHAIR CLOWE:  Great.  Thank you, Robert.
 8                 MR. TIRLONI:  You're welcome.
 9                 CHAIR CLOWE:  Thank you, Kathy.
10                 MS. PYKA:  You're welcome.
11                 CHAIR CLOWE:  Next item for report --
12                 COMMISSIONER COX:  Mr. Chairman?
13                 CHAIR CLOWE:  Yes, sir?
14                 COMMISSIONER COX:  I need about five
15   minutes to meet with Ms. Melvin and approve the
16   jackpot --
17                 CHAIR CLOWE:  Certainly.  We'll -- we'll
18   recess for five minutes.
19                 COMMISSIONER COX:  Thank you.
20                 (Recess from 4:01 p.m. to 4:12 p.m.)
21                     AGENDA ITEM NO. V
22                 CHAIR CLOWE:  We'll come back to order.
23   I believe at this point we are now ready to take up
24   item number five, report, possible discussion or action
25   on the agency's financial status.
0134
 1                 MS. PYKA:  Thank you.  For the record
 2   again, my name is Kathy Pyka.  Tab five includes
 3   information on the agency's financial status.
 4                 The first report reflects transfers and
 5   allocations to the Foundation School Fund and
 6   allocation of unclaimed prizes as of January of 2006.
 7   Total transfers to the state for this month amounted to
 8   333 million -- 333.9 million and this represents a 1.7
 9   percent increase over the same time period last fiscal
10   year.
11                 The second page of your notebook reflects
12   detailed information for the monthly transfers.  Of the
13   $333.9 million transfer to this date, 320 million was
14   the amount transferred to the Foundation School Fund
15   with a 13.9 balance transferred from unclaimed lottery
16   prizes.
17                 The following document in your notebook
18   simply calculates the transfer to the Foundation School
19   Fund.
20                 And finally, the last document provides
21   you the historical information of sales expenditures
22   and transfers for fiscal year 1992 to the present.
23   This notes total cash basis transfers to the Foundation
24   School Fund through January, again, of 320 million with
25   a cumulative transfer to the Foundation School Fund of
0135
 1   7.9 billion.
 2                 And then last, I will walk through the
 3   agency's fiscal year 2006 operating budget by method of
 4   finance, the very last page of the document.  Our
 5   fiscal year 2006 lottery account budget for -- is 182.3
 6   million of this amount, 27 percent is expended through
 7   the first four months.
 8                 And our Bingo Operations Division funded
 9   by general revenue is 13.5 million.  They have also
10   expended 27 percent through the first four months.
11   Each of the expenditure categories for both of these
12   budgets is on track with the four-month expenditure
13   pattern.
14                 I'd be happy to answer any questions for
15   you.
16                 CHAIR CLOWE:  Excellent.  Thank you,
17   ma'am.
18                 MS. PYKA:  You're welcome.
19                     AGENDA ITEM NO. VI
20                 CHAIR CLOWE:  Next item six, report,
21   possible discussion and/or action on the selection of
22   jackpot payment option for prize winners.
23                 Ms. Pyka?
24                 MS. PYKA:  Thank you again,
25   Commissioners.  For the record, my name is Kathy Pyka,
0136
 1   to my right, Robert Tirloni, products manager, and
 2   Deanne Rienstra, assistant general counsel.  I will let
 3   Robert begin our presentation this afternoon.
 4                 MR. TIRLONI:  Good afternoon again,
 5   Commissioners.  For the record, my name is Robert
 6   Tirloni.  I am the products manager for the commission.
 7                 This is follow-up, Commissioner, to --
 8   Commissioners, to an issue that came up I believe again
 9   at the November meeting about jackpot prize winners
10   choosing cash value option or annual payments.  And we
11   were asked to go out and do some research on that and
12   come back with information.  And that's why the three
13   of us are here today.
14                 So we contacted through our internal
15   research group 42 states plus the District of Columbia.
16   And all of those either have an in-state or a
17   multistate jackpot game.  And out of those
18   jurisdictions, 40 allowed the jackpot winner some
19   limited flexibility in choosing the cash value option
20   after claiming the jackpot prize.
21                 Only two states, Texas being one of the
22   two, and New York, require the player to make the
23   jackpot payment choice at the time of the actual
24   purchase at the retail location.
25                 All 40 of the lotteries that offer this
0137
 1   limited flexibility in choosing the cash value option
 2   allow a maximum of 60 days from the date of entitlement
 3   to make that choice.
 4                 Just for informational purposes, 90
 5   percent of players are choosing the cash value option
 6   in both Lotto and Mega Millions.  And that percentage
 7   varies very little regardless of what the jackpot level
 8   is.
 9                 CHAIR CLOWE:  And Robert?
10                 MR. TIRLONI:  Yes, sir.
11                 CHAIR CLOWE:  In that regard, what's the
12   break -- percentage breakdown on those players choosing
13   cash value as opposed -- or quick pick as opposed to
14   their own numbers now?
15                 MR. TIRLONI:  For most of the games
16   except Pick 3, it's well over 70 percent.
17                 CHAIR CLOWE:  And do you have the
18   percentage of winners?
19                 MR. TIRLONI:  I don't have that right
20   now, no.
21                 CHAIR CLOWE:  Okay.  Thank you.
22                 MR. TIRLONI:  The last time that a Lotto
23   Texas jackpot winner claimed a 25 annual payment
24   jackpot prize was in September of 2003.  Since that
25   time, 16 jackpot winners have been paid under the cash
0138
 1   value option selection.
 2                 CHAIR CLOWE:  What does that tell you,
 3   Commissioner?
 4                 COMMISSIONER COX:  That tells me that
 5   people think that interest rates over the next 25 years
 6   are going to rise and they'll have the opportunity to
 7   invest that cash money, even after they pay taxes, and
 8   come out with more money 25 years from now than if they
 9   took payments.
10                 CHAIR CLOWE:  I agree.  And maybe -- you
11   know, and you're not looking at just bonds or fixed
12   instruments, the stock market.
13                 COMMISSIONER COX:  Sure.  They may be
14   looking to take a higher risk --
15                 CHAIR CLOWE:  Yeah.
16                 COMMISSIONER COX:  -- than they would be
17   taking if they took payments.
18                 CHAIR CLOWE:  So they're probably not
19   consciously investigating it in a detailed way before
20   they buy a ticket, but they're subconsciously thinking
21   I'd rather have this than that.  And then they get
22   financial advice probably if they win.
23                 COMMISSIONER COX:  Of course, that --
24   then it's too late.
25                 CHAIR CLOWE:  Too late.  That's right.
0139
 1   What would you do, if that's a fair question?
 2                 COMMISSIONER COX:  Oh, no.  It is a fair
 3   question.  I -- I think that, rather than accepting the
 4   risk profile, the investment risk profile that the
 5   State of Texas Treasurer chose for me, I would rather
 6   choose my own risk profile.
 7                 CHAIR CLOWE:  As well.
 8                 COMMISSIONER COX:  Even though I might
 9   not believe that interest rates on average over the
10   next 25 years are going to get any higher than I
11   believe than they are right now.
12                 CHAIR CLOWE:  And I think there's just
13   sort of an individualistic bent in Texas that I just
14   assume be investing my own money as having the state do
15   it for me.
16                 COMMISSIONER COX:  Exactly.
17                 CHAIR CLOWE:  Not that that has anything
18   to do with this, Robert but --
19                 MR. TIRLONI:  That's fine.
20                 CHAIR CLOWE:  You know, I'm just trying
21   to understand our players better.
22                 MR. TIRLONI:  Absolutely.  And Ms. Pyka
23   is going to continue with the discussion at this point.
24                 MS. PYKA:  Or a related discussion.  The
25   next story of our report does focus on how interest
0140
 1   factors impact calculation and the payment of
 2   annuities.
 3                 The slide that we have before you
 4   presents interest factors from September 2002 through
 5   December 2005.  Actually, I think we've gone into
 6   January 4th of '06.  Over this time frame, you'll note
 7   that we have a range of interest factors.
 8                 Our low is in June of 2003 when we're
 9   looking at 1.5568 and our highest interest factor of
10   this time frame is in September of 2003 at 1.7904.
11                 What I'd like to do, as we move forward,
12   I'd like to focus over the time period of August 6th,
13   '05 to October 5th, '05.  I've got a nice high and low
14   there and -- and actually work through the impact on
15   the calculation of annuity, which will be our next
16   slide.
17                 This slide actually calculates the cost
18   of a $50 million annuity using four different interest
19   factors.  We've used a 60-day period.  The first date
20   that we're looking at has an interest factor of 1.635.
21   We're indicating this is the date of the purchase of
22   the bond.
23                 In our case, we're saying this is August
24   the 24th.  In this case, we have an annuity cost of
25   31.2 million.
0141
 1                 Our next date that we selected is 18 days
 2   later.  And the reason that we selected this date is,
 3   the average time frame between the sale of a jackpot
 4   ticket and the validation or the claim of it, in our
 5   case here in Texas, is 19 days.
 6                 So 18 days later we have an interest
 7   factor of 1.603.  At that point in time, the
 8   calculation of the annuity represents 31.2 million.
 9                 And then we move forward down to a
10   one-month time frame with an interest factor of 1.585.
11   And we have then a reduction in the calculation of
12   the -- or an increase in the calculation of annuity of
13   970 thousand.
14                 And then at the 60-day period, or two
15   months later, an interest factor of 1.684 and the
16   annuity cost drops to 30.5 million, just a simple
17   scenario over the 60-day time period to show the
18   difference in those interest factors and what it does
19   to that jackpot annuity calculation.
20                 And then the final item that you inquired
21   about, as we look at this is -- in the November
22   meeting, you asked, well, what is California doing.  In
23   that meeting, we noted that --
24                 COMMISSIONER COX:  Let's -- could we back
25   up just a second?
0142
 1                 MS. PYKA:  Certainly.
 2                 COMMISSIONER COX:  I was just looking up
 3   some numbers.  Kathy, today the 30-year treasury closed
 4   to yield 4.52 percent.
 5                 MS. PYKA:  Okay.
 6                 COMMISSIONER COX:  Now let's talk about
 7   some prognostications that are out there.  The
 8   prognosticator that I follow most closely is a bond
 9   manager in Austin named Van Hoisington.  And Van
10   Hoisington and his staff have given a couple of
11   indications, one historical.
12                 And that is, while we think of the
13   30-year bond at 4.52 percent as being low, that's
14   actually above the historical average going back to
15   1872.  Average for that period of time is 4.2.
16                 The low over that period of time is 2.2.
17   And Hoisington's present prediction is that the long
18   bond will go below three in this cycle.  Now just -- I
19   know you don't have your calculator with you.  You may
20   not have an algorithm.
21                 But what would it do to us, to our
22   jackpots, if the 30-year bond went below three and
23   let's just say it was flat?
24                 MS. PYKA:  Certainly we're looking at a
25   pretty substantial modification of interest factor that
0143
 1   is used here in the state of Texas.
 2                 COMMISSIONER COX:  Would it go as low as
 3   1.2, 1.1 in that kind of case?
 4                 MS. PYKA:  I wouldn't want to predict.
 5   I'd want to go back and actually calculate that and
 6   look at the other factors that going into that and look
 7   at what safekeeping trust company uses, if they're
 8   doing that sort of calculation.
 9                 But that's something that -- you know,
10   I -- I think that that's a good way of looking at it.
11   And we can certainly look at that further and report
12   back.
13                 COMMISSIONER COX:  Well, I think in
14   staff's planning, y'all need to be looking at those
15   kinds of scenarios, and I know you are.
16                 MS. PYKA:  Sure.
17                 COMMISSIONER COX:  But I think one
18   scenario we might look at is:  What if the long bond
19   went to 4.2, let's say --
20                 MS. PYKA:  Uh-huh.
21                 COMMISSIONER COX:  -- historical average
22   and the yield curve was flat --
23                 MS. PYKA:  Right.
24                 COMMISSIONER COX:  -- so we were getting
25   4.2 on everything.  Then what would the rate be?  And
0144
 1   then what if it inverted or what if it were slightly
 2   traditionally sloping but you had that point pegged?
 3                 And, you know, then take it down to three
 4   and see what happens.
 5                 MS. PYKA:  Certainly.
 6                 COMMISSIONER COX:  And just so Gary and
 7   the staff will know and maybe even if you want to
 8   report to us what -- what kind of thing we'd be looking
 9   at if that happened.
10                 MS. PYKA:  Sure.  We'll be happy to do
11   that, Commissioner.
12                 COMMISSIONER COX:  Thank you, Mr.
13   Chairman.
14                 CHAIR CLOWE:  Uh-huh.
15                 MS. PYKA:  Continuing on, in the meeting
16   that y'all inquired about the California jackpot -- we
17   had the winner, the Mega Million winner out there.  And
18   a big question came up.  How do they handle the fact
19   that they do allow payment selection after time of
20   ticket purchase?  What do they do for their investment
21   practices in the -- in California?
22                 So we researched that further and I
23   wanted to report back to you.  Their state does allow
24   60 days to select their payment selection if the -- the
25   player does not select cash at the point in time of
0145
 1   ticket sale.  If they select annuity at ticket sale,
 2   then they get 60 days to change it to cash if they are
 3   the winner.
 4                 What they do is they do purchase their
 5   bond on the first date after the ticket draw.  If the
 6   player selects the cash option, the player actually
 7   just simply gets the net present value of that
 8   particular annuity.
 9                 COMMISSIONER COX:  So they sell it and he
10   gets that?
11                 MS. PYKA:  Exactly.
12                 CHAIR CLOWE:  Is that a plus or minus
13   ordinarily?
14                 MS. PYKA:  It depends on that interest
15   factor of the scenario here that we're looking at.
16                 CHAIR CLOWE:  Okay.
17                 MS. PYKA:  Now the exception is if they
18   have a Mega Million ticket winner that is being shared
19   with another state.  California then takes cash from
20   Virginia, does their own bond investment.  And based on
21   that advertised jackpot, if there is a loss or a gain,
22   California in the case of Mega Million does absorb the
23   loss within their own operating fund.
24                 If the game is there, I mean, that's a
25   different story.  So it's kind of interesting how they
0146
 1   handle their practice.  And we looked at several other
 2   states and found so many different practices among the
 3   states that allow payment selection after the time of
 4   ticket purchase.
 5                 So I just wanted to share that update
 6   with you.  May we answer any questions before Deanne
 7   moves forward?
 8                 COMMISSIONER COX:  What -- Deanne, you're
 9   going to get into the things that you and I talked
10   about briefly?
11                 MS. RIENSTRA:  Yes, sir.  Good afternoon.
12   I am Deanne Rienstra, assistant --
13                 CHAIR CLOWE:  Let's have the lights,
14   please.  Pardon me, Deanne.
15                 MS. RIENSTRA:  Assistant general counsel.
16   You have previously been provided a history and legal
17   analysis of this issue.  I'm going to give you a brief
18   summary of that information.  And if you have any
19   questions, please let me know.
20                 As has been discussed here in Texas,
21   players must choose their payment option at the time
22   they purchase their ticket, either the cash value
23   option or the annual payments.
24                 As of this date, Texas has refrained from
25   allowing a player to make that choice at a later time
0147
 1   such as when the prize is claimed.  The basic reason
 2   for not changing this present practice is the thinking
 3   that to do so would risk the imposition of the tax
 4   principle known as the constructive receipt doctrine.
 5                 By way of background, states that have
 6   allowed players to make their choice at a later time
 7   have relied on the 1998 federal tax law provision that
 8   provides a limited exception to the constructive
 9   receipt doctrine.
10                 This exception allows for a 60-day time
11   period from the date of entitlement for a prize winner
12   to choose the cash value option or the annual
13   installments.  Additionally, this exception is
14   available to individuals or partnerships or other
15   pass-through entities -- and I quote -- consisting
16   entirely of individuals.
17                 The concerns in Texas are twofold.
18   First, there is no clear law or IRS guidance on the
19   definition of date of entitlement.  Some states have
20   determined this to be at the time the ticket is drawn
21   and others at the time the claim is presented.
22                 The second concern is that many of the
23   prize winners in Texas are non-individual claimants,
24   such as a limited partnership with a corporate general
25   partner.
0148
 1                 COMMISSIONER COX:  Now you said many.
 2                 MS. RIENSTRA:  Yes, sir.
 3                 COMMISSIONER COX:  Not just one every now
 4   and then, not once in a while but many.
 5                 MS. RIENSTRA:  I said many.
 6                 COMMISSIONER COX:  Thank you.
 7                 MS. RIENSTRA:  Which -- corporate general
 8   partner, which is a legal entity that is not made up
 9   entirely of individuals.  Therefore, this exception
10   would not be available to all Texas claimants.
11                 I did call the New York Lottery.  And
12   their reasons for not changing their regulations at
13   this time did not concern the tax law but had more to
14   do with funding of the prize since their players have
15   up to one year to claim their prize.
16                 I also have information regarding
17   where -- the definition of who is allowed to claim the
18   prize in Texas.  It is a very broad set of rules, but
19   the procedures to claim a prize are set out in the
20   Texas Administrative Code.
21                 These rules refer to a claimant or a
22   person.  The administrative code defines a claimant as
23   a player who has submitted a valid claim for payment
24   within the required time frame.  The State Lottery Act
25   defines a player as a person.
0149
 1                 We then must look to the government code
 2   under the construction to -- for the definition of
 3   person.  And it defines a person to include a
 4   corporation, organization, government or governmental
 5   subdivision or agency, business trust, estate, trust,
 6   partnership, association and any other legal entity.
 7                 Thank you.
 8                 COMMISSIONER COX:  Okay.  Let me clear up
 9   one thing that I saw here and I thought I heard you say
10   this morning.  We and New York are in the category --
11   the only two states in the category where the player
12   must make an election before or at the time the ticket
13   is bought.
14                 MS. RIENSTRA:  Yes, sir.
15                 COMMISSIONER COX:  Now did you tell me
16   this morning that in New York, when the winner claims,
17   they can change that election?
18                 MS. RIENSTRA:  No, sir.
19                 COMMISSIONER COX:  You did not tell me
20   that?
21                 MS. RIENSTRA:  No, sir.
22                 COMMISSIONER COX:  What you told me was
23   they're the same place we are but not for the same
24   reason?
25                 MS. RIENSTRA:  Correct.  Yes, sir.
0150
 1                 COMMISSIONER COX:  So on the one hand, if
 2   we changed -- if we changed what we did and didn't run
 3   into the possibility of some player unwittingly getting
 4   hit with constructive receipt, we would have to change
 5   the definition of who can win.
 6                 We would have to take the corporation out
 7   of there and leave only individuals as capable of
 8   winning.  Is that what I understood you to say?
 9                 MS. RIENSTRA:  We would have to proceed
10   carefully and review that because we would not --
11                 COMMISSIONER COX:  So that might be the
12   way we'd have to?
13                 MS. RIENSTRA:  Yes, sir.
14                 COMMISSIONER COX:  So -- and if we did
15   that, what I heard you say, when you say many people
16   claim as family limited partnerships with a corporate
17   general partner, is that we would be foreclosing
18   perhaps the method of choice for our claimants?
19                 MS. RIENSTRA:  Yes, sir.  And I do have
20   some very, very rough numbers for you.
21                 COMMISSIONER COX:  Great.
22                 MS. RIENSTRA:  I can tell you that, since
23   1992 through about June of 2004, we've had about 251
24   entities make a claim of which 47 of those entities had
25   a corporate general partner.  These are not just family
0151
 1   limited partnerships.
 2                 COMMISSIONER COX:  And did you see that
 3   in a -- in a way whether you could spot whether there's
 4   a trend toward more or fewer?
 5                 MS. RIENSTRA:  No, sir.  I haven't looked
 6   at trends.  We can keep researching that for you.
 7                 COMMISSIONER COX:  So Gary, I guess what
 8   you got is, on balance, do you -- how many people are
 9   unhappy with the fact that they're unable to change
10   their election after they know whether they won or not
11   when it really matters and versus how many people would
12   really be unhappy if they couldn't claim as a family
13   limited partnership with a corporate general partner?
14                 Seems to be the question.
15                 MR. GRIEF:  Going to your -- to your
16   first point, correct me if I'm wrong.  Have we had any?
17   I don't believe we've had any complaints from players
18   about being able to not choose once they've come in to
19   claim their prize.
20                 Would that be a fair statement?  I'm not
21   aware of any.
22                 MS. RIENSTRA:  I think we've had
23   questions come through as to why we have not.  I know
24   I've had to respond to some questions as to why we did
25   not allow a player like other states.
0152
 1                 MR. GRIEF:  From winners?
 2                 MS. RIENSTRA:  Oh, not --
 3                 MR. GRIEF:  That's --
 4                 MS. RIENSTRA:  Players.  I'm sorry.
 5                 MR. GRIEF:  I'm talking about people that
 6   actually come in and claim a prize.  I don't recall a
 7   situation ever coming up where a player came in and did
 8   not -- was not happy with the fact that they were not
 9   allowed to change the manner in which they were
10   claiming.
11                 COMMISSIONER COX:  So this won't be the
12   first time I've tried to fix a problem that didn't
13   exist.
14                 MS. KIPLIN:  If I might, the -- who can
15   win, you know, is a person.  And changing the
16   definition of person, if you want to get to that, you
17   know, you want to do it from a broad brush, that's
18   actually changing state law.  That's in the code
19   construction act.  That's not --
20                 COMMISSIONER COX:  So we couldn't do
21   that, anyway.
22                 MS. KIPLIN:  That's not -- that's not
23   even in the State Lottery Act.
24                 COMMISSIONER COX:  Okay.
25                 MS. KIPLIN:  So you -- I'll just -- I'll
0153
 1   just put that on the table.
 2                 COMMISSIONER COX:  Okay.  So what I've
 3   done is created an interesting exercise that has no
 4   practical...
 5                 MS. KIPLIN:  Well, I -- you know, I'm --
 6   I guess --
 7                 COMMISSIONER COX:  And that's fine.
 8                 MS. KIPLIN:  Maybe I added to it, but --
 9   and I can't remember why.  But I felt like you needed
10   the information.  It might have been one of those other
11   times where I felt like you needed the information.
12   Now you're telling me --
13                 COMMISSIONER COX:  For some reason, I
14   perceived that this was a concern of our players.
15                 MS. KIPLIN:  Well, it -- and I'm the one
16   who put this out there because I've seen it in the
17   comments that we receive on -- on changes to game
18   rules.  And there is a -- there is -- there are
19   comments that are received about let the player make --
20   you know, make their decision at the time that they
21   claim.
22                 And I'm paraphrasing because I don't
23   think those folks who are providing those comments -- I
24   may be wrong on this.  I understand that another issue
25   is that the IRS uses the phrase "date of entitlement."
0154
 1   And you heard Deanne talk about that.
 2                 Who knows what that is.  I mean, the risk
 3   analysis that the lawyers looked at, at the time that
 4   the Omnibus Tax Bill came into effect is -- remains the
 5   same.  The conclusions in that risk analysis, from a
 6   legal perspective in my view, remain the same.
 7                 Deanne, you can -- you can correct me if
 8   I'm wrong because there has been no IRS ruling.
 9   There's been no -- no litigation on hey, state, you
10   know, you've got it wrong.  You -- you interpret the
11   date of entitlement to mean something different and now
12   you've opened the door to your folks in terms of the
13   application constructive receipt.
14                 COMMISSIONER COX:  So if I heard that
15   right, even if we wanted to help these players who had
16   that concern, as long as we want to return -- remain
17   paternalistic and protect them from the application of
18   constructive receipt, we don't have a way to do that.
19                 MS. KIPLIN:  And see, the -- I guess the
20   concern at the time remains the concern now, and that
21   is it's not the person that gets to make the decision.
22   It's not -- the application of the constructive receipt
23   doctrine doesn't impact just the person who gets to
24   make the decision and designate that decision.
25                 It impacts those that haven't made the
0155
 1   decision that they -- let's just say that they stuck
 2   with the 25-year option, payout option.  Well, when
 3   that application comes through, what the -- as I
 4   understand the doctrine, it applies to all, not just
 5   the person who decided, you know, I want a lump-sum
 6   payment because, if the state can so easily do that,
 7   then that means that you, the person who decided
 8   25-year payment, that --
 9                 COMMISSIONER COX:  Uh-huh.
10                 MS. KIPLIN:  Then you -- you could
11   constructively receive your money also at the front
12   end.  Now you have to pay tax on everything,
13   notwithstanding the fact that -- that you've chosen 25
14   years out.  So you go find the tax to pay on that.
15                 That's my understanding of the harshness
16   of the application of the constructive receipt rule.
17   It would be -- it would be one thing if it was limited
18   to the person who gets to make the -- who made the
19   decision.
20                 But it -- but it -- the impact are on
21   those that -- that didn't opt for that decision but
22   then are -- are impacted by it.
23                 COMMISSIONER COX:  That's called
24   collateral damages.
25                 MS. KIPLIN:  Yeah.  Well, okay.  That
0156
 1   might have been more concise.  But -- and I guess when
 2   we were talking about -- my recall was not that great
 3   and I did not recall that -- that the non-individual
 4   winners, if you will, don't even get to fit within this
 5   King's X provision on the constructive receipt
 6   application.
 7                 So in -- it turns out the majority of our
 8   folks, our -- our claimants claim as these
 9   non-individual winners.  So it wouldn't even help them
10   because that -- that constructive receipt exemption
11   wouldn't even apply.
12                 COMMISSIONER COX:  Thank you for your
13   patience, Mr. Chairman.
14                 CHAIR CLOWE:  I was just sitting here
15   minding my own business.  Thank you.
16                 MS. RIENSTRA:  Thank you, Commissioners.
17                    AGENDA ITEM NO. VII
18                 CHAIR CLOWE:  Next item seven, report,
19   possible discussion and/or action on the Mega Millions
20   game and/or contract.
21                 MR. GRIEF:  Commissioners, as I reported
22   to you last month, I offered to the Mega Million state
23   lotteries in my meeting with them recently to have our
24   legal team put together a position paper on Texas's
25   interpretation of Section 22 of the Mega Millions
0157
 1   Agreement.
 2                 And the Mega Millions group, in turn,
 3   agreed to review that document and provide their own
 4   legal analysis to it and also provide me with their
 5   specific concerns as to that part of the contractual
 6   language.
 7                 As an update, I provided this position
 8   paper to the Mega Millions Group via e-mail on January
 9   6th.  And I'm awaiting a response from that group.
10                 And in that same e-mail, I reminded them
11   of my request for any notes on the past discussions
12   that took place between Mega Millions and Powerball.
13   And I asked that they please forward those to me, as
14   well.
15                 And I'll let you know as soon as I
16   receive a response.
17                 CHAIR CLOWE:  And Commissioner Cox and I
18   are still waiting.
19                 MR. GRIEF:  Yes, sir.
20                 CHAIR CLOWE:  Thank you, Gary.
21                      AGENDA ITEM NO. X
22                 CHAIR CLOWE:  Next item 10, report,
23   possible discussion and/or action on the lottery
24   advertising and promotion.
25                 Ms. McCullough?
0158
 1                 MS. McCULLOUGH:  Good afternoon, Mr.
 2   Chairman, Commissioner.  For the record, my name is
 3   Chelsea McCullough.  I'm the creative coordinator for
 4   the Texas Lottery Commission.
 5                 In regards to our advertising, the next
 6   scheduled advertising campaign is the follow-up on the
 7   Texas Hold 'Em instant ticket.  That schedule will
 8   begin running on January 23rd and run for three weeks
 9   until February 12.
10                 The campaign will be supported by radio
11   and will run one hundred percent Texas Hold 'Em unless
12   the Mega Millions jackpot is above 100 million.
13                 There are also three promotions listed
14   for the month of January.  And additional details are
15   in your packet.
16                 COMMISSIONER COX:  So the Texas Hold 'Em
17   game is knocking their socks off and we haven't even
18   advertised it yet.  Is that correct?
19                 MS. McCULLOUGH:  There actually was an
20   advertising campaign in October.
21                 COMMISSIONER COX:  So one we saw before
22   of the people playing poker in the convenient store,
23   that has been run?
24                 MS. McCULLOUGH:  Yes, sir.
25                 COMMISSIONER COX:  Is that going to be
0159
 1   the same one that's run this time or have you got
 2   another one?
 3                 MS. McCULLOUGH:  No, sir.  That's the
 4   same advertisement that we're running again with a
 5   minor modification.  The new ticket will be shown in
 6   this advertisement.
 7                 COMMISSIONER COX:  Okay.  And so will we
 8   be able to -- Gary, whoever -- gather any valuable data
 9   about the value of advertising by seeing what this does
10   to ticket sales?  Have we traditionally run it, let it
11   fall off, run it again on the same game or do we
12   generally just run it once on a game and then let the
13   chips fall where they may?
14                 MR. GRIEF:  Generally, it's the latter.
15   But I believe in the past there have been some games
16   where we've had that -- where we've had a very
17   successful game and we've hit it again with the
18   advertising, the same advertising sometimes tweaked
19   like Chelsea mentioned.
20                 And we will be able to gather some data,
21   yes, sir.
22                 COMMISSIONER COX:  I look forward to
23   seeing the results of that.
24                 MS. McCULLOUGH:  Yes, sir.
25                 CHAIR CLOWE:  Chelsea, what percentage
0160
 1   are advertising dollars now going for scratch-off
 2   tickets?
 3                 MS. McCULLOUGH:  I don't have that number
 4   off the top of my head, but I'll be happy to work with
 5   financial and --
 6                 CHAIR CLOWE:  Would you do that?
 7                 MS. McCULLOUGH:  -- get that report for
 8   you.  Absolutely.
 9                 CHAIR CLOWE:  I'd be curious to see what
10   the breakout is on that.
11                 MS. McCULLOUGH:  Yes, sir.
12                 CHAIR CLOWE:  Thank you.
13                 MR. GRIEF:  Mr. Chairman, I have a
14   supplement to this item I'd like to --
15                 CHAIR CLOWE:  You have what?
16                 MR. GRIEF:  Supplemental information.
17                 CHAIR CLOWE:  Sure.
18                 MR. GRIEF:  I wanted to update you on a
19   lottery advertising initiative that's in the
20   development stages right now.  We're working with our
21   advertising agencies to create an ad campaign that is
22   going to focus on the beneficiaries of the revenue
23   generated by the Texas lottery.
24                 The focus of that campaign will be, of
25   course, first and foremost on the revenue that's
0161
 1   generated for the Foundation School Fund, as well as
 2   the benefits to those many prize winners who win prizes
 3   from the game.
 4                 We have reached out to the Offices of the
 5   Governor, the Lieutenant Governor, Speaker and Chairman
 6   of the House Licensing and Administrative Procedures
 7   Committee.  And we have received positive feedback from
 8   all of those offices on that concept.
 9                 I wanted to raise this matter to the
10   commissioner's attention in an open meeting to be
11   certain that this kind of initiative is acceptable to
12   the -- to the commission.  I'm asking that you allow us
13   and direct us to move forward on that concept.
14                 Due to other ad campaigns that are
15   already in the pipeline, I don't anticipate this coming
16   out until the summer or early fall.  But I wanted to
17   give the commission ample time to consider and ponder
18   that if you so choose.
19                 And I'd be happy to answer any questions
20   about that.
21                 COMMISSIONER COX:  Mr. Chairman, I have
22   long thought this was something that we should be
23   doing.  Gary has helped me from the first days I was
24   here understand how important this has been to Georgia
25   and perhaps in other states.
0162
 1                 And I think that letting folks know that
 2   this money goes for a good cause is very important.
 3                 CHAIR CLOWE:  I agree.  And I accompanied
 4   Gary to the offices that he mentioned with the
 5   exception of one.  We got a positive attitude, I think,
 6   expressed, as he pointed out, in every one of the
 7   leadership offices.
 8                 The -- the general mood has changed over
 9   the years.  And it is more acceptable, I think, now to
10   tell this story than it has been in years past.  I
11   think we continue to be respectful of those individuals
12   who are opposed to authorized gaming in this state.
13                 And we want to be careful not to infer
14   through our advertising that the lottery supports
15   schools per se.  By that I mean that all the schools
16   are supported by lottery contribution.
17                 But as long as we tell the story in a
18   well-balanced and even-handed manner and it's truthful
19   and done properly, I think we can tell this story.  And
20   it is a story that's honest and should be told.
21                 I don't think it's going to drive people
22   to go out and buy lottery products.  But I think it is
23   the truth and it is something that needs to be put out
24   there.
25                 There are many aspects to this.  You
0163
 1   know, the demographic survey that we covered earlier
 2   today, the preference for the different games, the
 3   payout to me is of great importance.  But this aspect
 4   of telling the story is important.
 5                 I think advertising is a critical need.
 6   And you have concentrated on where's the benefit, what
 7   do we get for our dollar.  But I think it's going to be
 8   interesting to watch this and see what the results are
 9   and if there's a beneficial result.
10                 I think one of the best ads we've
11   produced has been the one where we centered on the
12   winners and they told their story.  And I think that
13   was pretty powerful stuff.
14                 You and I have seen the draft of this
15   video, I think.
16                 COMMISSIONER COX:  Yes, sir.
17                 CHAIR CLOWE:  And we've made suggestions,
18   I believe.  And you've had some suggestions from the
19   leadership offices.  And I'll be eager to see what the
20   finished product is when you arrive at it.  Is that
21   being made internally?
22                 MR. GRIEF:  No, sir.  That will be run
23   through our advertising agencies.
24                 CHAIR CLOWE:  DDB.
25                 MR. GRIEF:  DDB and --
0164
 1                 CHAIR CLOWE:  Yeah.  Well, I hope that's
 2   a really good product when it's finished.
 3                 MR. GRIEF:  We'll keep you posted.
 4                 COMMISSIONER COX:  Gary, one element of
 5   this that has a two-edged sword, and this is something
 6   that the UT School of Communications folks pointed out,
 7   is on the point that Chairman Clowe made about we can't
 8   claim that all funding for advertising comes from the
 9   lottery because only one-fourth of it does or something
10   like that.
11                 We wouldn't want to because then, if
12   funding for education falls for reasons totally
13   unrelated to the lottery, we could get painted with the
14   negative brush that that results in.  So I think, as we
15   look at the copy that comes out, we need to keep that
16   potential downside in mind and be sure that we're not
17   ringing that bell.
18                 MR. GRIEF:  We'll do just that.
19                 CHAIR CLOWE:  That's exactly right.
20   Anything further on this?
21                 MR. GRIEF:  No, sir.
22                 CHAIR CLOWE:  Thank you, Chelsea.
23                 MS. McCULLOUGH:  Thank you.
24                    AGENDA ITEM NO. XI
25                 CHAIR CLOWE:  Next item 11, report,
0165
 1   possible discussion and/or action on HUB and/or
 2   minority business participation including the agency's
 3   mentor/protege program.
 4                 Ms. Bertolacini?  Sorry about that.
 5                 COMMISSIONER COX:  Mr. Jackson.
 6                 CHAIR CLOWE:  Are you standing in for
 7   her, Mr. Jackson?
 8                 MR. JACKSON:  Yes, sir.
 9                 CHAIR CLOWE:  Very good.
10                 MR. JACKSON:  Good afternoon --
11                 CHAIR CLOWE:  Did we wear her out, too?
12                 MR. JACKSON:  Wore her out, too.
13   Commissioners, for the record, my name is Tom Jackson.
14   I'm the purchasing and contracts manager for the
15   agency.
16                 As is indicated in your notebooks, the --
17   due to the timing of this meeting and the TLC
18   subcontracting report to commission deadline, the
19   December monthly HUB minority contracting activity
20   report is not yet available.  Current information will
21   be provided to you at the next meeting.
22                 Additionally, the fiscal year 2005
23   minority business participation report has been
24   finalized and you should be receiving review copies
25   within the next two weeks.  The report will be
0166
 1   presented for approval at the February commission
 2   meeting.  And that's an ongoing report that we do each
 3   year.
 4                 There are no updates to the agency's
 5   mentor/protege program at this time.  I'd be happy to
 6   answer any questions you may have on the HUB.
 7                 CHAIR CLOWE:  Will the numbers be good,
 8   Tom?
 9                 MR. JACKSON:  I think they will, sir,
10   yes, sir.
11                     AGENDA ITEM NO. XII
12                 CHAIR CLOWE:  All right.  You have the
13   next item, I believe, number 12, report, possible
14   discussion and/or action on the agency's contracts.
15                 MR. JACKSON:  Yes, sir.  In your
16   notebooks under agenda item number 12 is a report on
17   contracts that have been updated for your review.
18                 If you have any questions, I'd be glad to
19   answer those.
20                 CHAIR CLOWE:  I believe there are none.
21   Thank you, Tom.  Next item, report --
22                 COMMISSIONER COX:  Mr. Chairman?
23                 CHAIR CLOWE:  Yes, sir.
24                 COMMISSIONER COX:  I -- I need to make
25   one phone call.
0167
 1                 CHAIR CLOWE:  Certainly.  We'll take a
 2   five-minute recess.  Then we'll come back to item 14,
 3   Ms. Trevino, when you are -- well, I think we wore her
 4   out.
 5                 (Recess from 4:49 p.m. to 4:53 p.m.)
 6                     AGENDA ITEM NO. XIV
 7                 CHAIR CLOWE:  We'll come back to order.
 8   And now we'll deal with item 14, report, possible
 9   discussion and/or action on the 79th Legislature.
10                 Mr. Haza?
11                 MR. HAZA:  Hello, Commissioners.  I'm
12   Colin Haza from the Governmental Affairs staff
13   substituting for Nelda today.  I have a very brief
14   update related to the House Licensing and
15   Administrative Procedures committee.
16                 We've been advised that the committee is
17   planning to hold a hearing in February to discuss some
18   of the committee's interim charges.  We have been asked
19   to present information to the committee at the meeting.
20   And we will provide you with updates as we work with
21   the committee to prepare for the upcoming hearing.
22                 Lastly, we're going to continue to
23   monitor other legislative interim committee activities
24   and we'll keep you informed of any developments that
25   may occur related to these matters.
0168
 1                 I'd be happy to answer any questions.
 2                 CHAIR CLOWE:  Thank you very much.
 3                     AGENDA ITEM NO. XVI
 4                 CHAIR CLOWE:  Next item 16,
 5   consideration, possible discussion and/or action on the
 6   appointment and employment of an executive director.
 7                 Ms. Morris?
 8                 MS. MORRIS:  Good afternoon.  My name is
 9   Diane Morris.  I'm the human resources director.
10                 To date the commission has received 167
11   applications for the executive director position.  The
12   executive director search committee had also
13   recommended that the commission re-post the position
14   and continue to advertise.  In that sense, the position
15   has remained posted.  So it is remaining open until
16   filled.
17                 On January the 8th, we placed
18   advertisements in the Austin, Houston, Dallas, San
19   Antonio, Lubbock, Fort Worth, El Paso, Corpus Christi,
20   Valley Morning Star and the Midland Odessa newspapers.
21                 The executive search committee has been
22   asked to continue to review applications.  Most
23   recently, they've been asked to review them and, if
24   they feel a need to meet in the end of January or the
25   beginning of February, to please let me know so that I
0169
 1   will facilitate that meeting.
 2                 Again, the executive search -- the
 3   executive director search committee is responsible for
 4   identifying individuals that they feel may be promising
 5   candidates.  The process is for them to meet with those
 6   candidates, to interview them and to make
 7   recommendations to the commissioners whether the
 8   commissioners should interview the candidates.
 9                 That's the end of my report.
10                 CHAIR CLOWE:  Questions?
11                 COMMISSIONER COX:  Mr. Chairman, I have
12   one question.
13                 CHAIR CLOWE:  Yes, sir.
14                 COMMISSIONER COX:  Do you intend to
15   appoint someone to fill this chair that was held by Mr.
16   Sadberry?
17                 CHAIR CLOWE:  That's an excellent
18   question and the answer is yes.  I have asked Mr. John
19   Edwards, who is executive director of the State Bar of
20   Texas, to fulfill that role.
21                 COMMISSIONER COX:  So he's going to
22   chair?
23                 CHAIR CLOWE:  That's right.
24                 COMMISSIONER COX:  But as far as adding
25   another member to replace the one that was removed?
0170
 1                 CHAIR CLOWE:  I think not because those
 2   members of the committee have gone down the road
 3   together.  They have formed a cohesive working group.
 4   There's excellent rapport between them.  And we started
 5   with really eight members.
 6                 And with the adjustments that we're
 7   making now, we still have a good group that, in my
 8   opinion, are adequate.
 9                 COMMISSIONER COX:  Great.
10                 CHAIR CLOWE:  I think it would be a
11   disservice at this point to have somebody to come late
12   and join the group.  They wouldn't have the benefit of
13   the history.  And so I'm satisfied with the group as we
14   have it today.
15                 And additionally, to go back to asking
16   John Edwards to function as the chair, I like the idea
17   of me not participating beyond the startup meeting that
18   I did.  I want to be in the same position that you are
19   relative to the search committee acting independently.
20                 And Anthony Sadberry -- well, Betsy
21   Whitaker first did a great job then Anthony Sadberry
22   performed admirably.  And I think John Edwards will
23   follow in that role and do a good job, as well.
24                 And I like the idea of, you know, maybe
25   asking different members to chair.  It gives it a nice
0171
 1   flavor.  Are you okay with that?
 2                 COMMISSIONER COX:  You bet.
 3                 CHAIR CLOWE:  I've been asked a couple of
 4   questions, Commissioner Cox, by the media that I think
 5   might be appropriate to mention here.
 6                 One was the issue of the nine people who
 7   were interviewed by the search committee.  They were
 8   initially identified incorrectly in the press as
 9   finalists.  And I was able to correct that with the
10   media saying that they were never designated as
11   finalists.
12                 They were designated as individuals to be
13   interviewed by the search committee and then
14   recommendations to come out of that for interviews by
15   the commission.  And four came out of there as
16   recommended for interview by you and me.  And, in fact,
17   you and I have interviewed those four people.
18                 Additionally, as Diane has alluded to,
19   there may be a desire on the part of the committee --
20   and they are the body that would select out of those
21   applications they are receiving and create a meeting
22   where they would interview individuals that they would
23   decide to either recommend or not recommend to us to be
24   interviewed.
25                 At this point in time, I would say we
0172
 1   have one or two promising applications that it's very
 2   likely they might determine they'd like to interview.
 3   But they would then make a decision among themselves
 4   whether to recommend those to us to interview or not.
 5                 They would not be considered to be
 6   finalists in any stretch of the imagination or any
 7   sense of the word.
 8                 The question also that I've been asked:
 9   Are we disappointed that we were unable to make a
10   selection during the six months of Gary Grief's term as
11   acting executive director?
12                 My answer to that is no that, although I
13   think I stated at one point in time we would like to
14   get this selection in the calendar year of '05, my
15   sense is that you and I are focused on selecting the
16   best qualified candidate and be satisfied, if and when
17   we make that choice, that we have done that, not to say
18   anything about the candidates we have interviewed or
19   talked to.
20                 And there was a fifth candidate, by the
21   way, now that I think of it, that the committee
22   interviewed and we interviewed as well.  But in my
23   mind, we have not reached a decision where we're ready
24   to settle on whoever is that best qualified candidate
25   on selection as the executive director.
0173
 1                 Additionally, I have been asked about the
 2   compensation.  My view is that the complexity, the
 3   difficulty, the challenges of this position require an
 4   incentive greater than 115 thousand dollars a year.
 5   And I'm hopeful that there will be some beneficial
 6   result that will occur that will allow minimally the
 7   cap to come off of that salary in grade five to go to
 8   139 thousand, about five hundred dollars, I think.
 9                 That -- for a three and a half
10   billion-dollar-a-year operation with the complexity and
11   the challenge that we have here, I'd like to see that
12   as a minimum maximum.
13                 Additionally, I want to make it clear
14   that Acting Executive Director Sadberry was approached
15   by me to be responsive, and he was, to accepting that
16   position.  He has not applied for the position of
17   executive director.
18                 We haven't discussed that.  And whether
19   or not he would do that is his decision.  And I haven't
20   given him any guidance on that and I assume you haven't
21   either but I don't know.
22                 COMMISSIONER COX:  No, sir.
23                 CHAIR CLOWE:  We look forward to him
24   being able to step in and be a part of this process as
25   it continues.  As Diane pointed out, we will continue
0174
 1   to advertise for the position.  The posting remains
 2   open.  We are hopeful to continue to have candidates.
 3                 But I think you and I are more focused
 4   and committed to getting the right person above
 5   everything else, the most qualified candidate as
 6   opposed to making the choice with any time limit.
 7                 And we had a time limit with Gary.  And
 8   we have now dealt with that problem.  We've
 9   successfully put that problem aside.  So I think now we
10   can do what we want to do, insofar as the selection of
11   this individual.
12                 Would you add anything to that?
13                 COMMISSIONER COX:  No.  I would -- I
14   would ask you to add something to it if you choose.
15   There are -- you said that there was some confusion
16   about the status of those nine people.
17                 I think there's also been some confusion
18   about the status of those five people that, as I
19   understand, the search committee suggested we interview
20   or recommended they interview.  They didn't pronounce
21   them as qualified.  They didn't say you should hire one
22   of these people.
23                 Would you talk a little bit about how
24   that worked?
25                 CHAIR CLOWE:  Yeah.  They just simply
0175
 1   recommended that you and I interview them.  And we did
 2   that.  And you and I have not responded in any way --
 3   and it would be improper to do so -- regarding our
 4   feelings except where candidates have continued to
 5   express interest that were interviewed.
 6                 Ms. Morris has responded that we continue
 7   to deliberate and they are still a candidate.  And that
 8   is where they are.  And -- and I understand their
 9   position.  I understand where our position is, I think.
10                 And my vote will go, when I'm ready to
11   give it, for the person that I see is the most
12   qualified individual.  And I will not vote until I'm
13   ready to vote for that individual.  I haven't reached
14   that point yet.
15                 COMMISSIONER COX:  That works for me,
16   too.
17                 CHAIR CLOWE:  In the meantime, I think
18   the commission has functioned extremely well under
19   Gary's direction.  I anticipate that it will continue
20   to function well with our managers supporting Anthony
21   Sadberry.  And that gives you and me the opportunity to
22   continue the search.
23                 And I would end this comment by saying
24   that this commission is open to applications.  I have
25   had two or three inquiries within the last couple of
0176
 1   weeks from individuals saying is the posting still
 2   open, are you still looking.
 3                 My response is absolutely yes and we urge
 4   candidates who may want to be considered to file their
 5   applications.  They will be considered.  The process
 6   continues.  Thank you, sir.
 7                 COMMISSIONER COX:  Thank you.
 8                     AGENDA ITEM NO. XIX
 9                 CHAIR CLOWE:  Now I believe we're ready
10   to go to item number 19, consideration of the status
11   and possible entry of orders in dockets listed by the
12   letters A through E.  And it's my understanding that
13   the staff desires to pass the docket represented by
14   letter F.
15                 Mr. White?
16                 MS. KIPLIN:  And G.
17                 CHAIR CLOWE:  And what?
18                 MS. KIPLIN:  Mr. Chairman, F and G.
19                 CHAIR CLOWE:  F and D.
20                 MR. ATKINS:  G.
21                 MS. KIPLIN:  G.
22                 CHAIR CLOWE:  G?  Excuse me.  I didn't
23   know you wanted to pass G.  Okay, Mr. White.  We'd like
24   to consider A through E, please.
25                 MR. WHITE:  Thank you, Chairman.  For the
0177
 1   record, my name is Steven White.  I'm the chief of
 2   enforcement.  With me is Kristen Law, enforcement
 3   attorney.
 4                 For you under tab A, subtab A, is a bingo
 5   proposal for decision involving a conductor
 6   organization who failed to pay prize fees.  It was a
 7   final jeopardy determination.  They have not paid the
 8   prize fees or the penalty.  The administrative law
 9   judge has recommended revocation of the license.
10                 And the staff recommends that you adopt
11   the judge's PFD.  Tab B and tab C --
12                 COMMISSIONER COX:  Now on tab A?
13                 MR. WHITE:  Yes, sir?
14                 COMMISSIONER COX:  Is this one that, if
15   the proposed rule that was exposed today were the rule,
16   we would have discretion on but presently we do not?
17                 MR. WHITE:  No, sir.  In this case, there
18   was a jeopardy determination and the time period has
19   passed.  And this will be --
20                 COMMISSIONER COX:  So this is one where
21   we would have no choice under the new rule, proposed
22   rule, or the present rule?
23                 MR. WHITE:  That's correct.  And this was
24   not a three times in one year.  It was -- it was a
25   single incident, but they have not paid the taxes, the
0178
 1   fees, and there has been a final jeopardy
 2   determination.
 3                 MS. KIPLIN:  But this would have counted
 4   towards one of the three strikes and you're out.
 5                 COMMISSIONER COX:  In the new rule?
 6                 MS. KIPLIN:  In the new rule.
 7                 COMMISSIONER COX:  But it's -- it's a
 8   one-strike-you're-out under the present rule?
 9                 MR. WHITE:  Yes, sir, because there have
10   -- they have not -- never paid their fees.
11                 COMMISSIONER COX:  So they cannot do that
12   three times under the proposed rule and --
13                 MR. WHITE:  Under the proposed rule, they
14   can have failed to do it three times in one year.  But
15   if they, you know, make good before the jeopardy
16   determination each time, it's --
17                 COMMISSIONER COX:  Okay.  But if they --
18                 MR. WHITE:  -- not mandatory.
19                 COMMISSIONER COX:  If they don't make
20   good before the jeopardy determination, under the
21   present situation or the proposed rule, they still lose
22   their license?
23                 MR. WHITE:  I believe under -- in either
24   case, if it's a single incident like this, it's
25   discretionary.  And so even -- this is a different
0179
 1   scenario, I guess.  This is not a
 2   three-times-within-a-year case.
 3                 COMMISSIONER COX:  Right.
 4                 MR. WHITE:  This is simply a case where
 5   they -- it was a one-time.  But they have never paid
 6   their fees.
 7                 COMMISSIONER COX:  So this is a different
 8   set of circumstances?
 9                 MR. WHITE:  Yes, sir.  It is.
10                 COMMISSIONER COX:  Okay.  Got you.
11                 MR. WHITE:  Tabs B and C are mass
12   registry of bingo worker cases proposal for decisions.
13                 Tab B is a case that involves removal of
14   six workers currently on the registry.  It's been
15   determined that they have disqualifying criminal
16   convictions.  And the administrative law judge has
17   recommended those six workers be removed from the
18   registry of workers.  And the staff recommends that you
19   adopt the ALJ's PFD in that case.
20                 Tab C, similarly, is a PFD involving 10
21   applicants to be on the registry of workers.  Again,
22   the administrative law judge has recommended that they
23   be denied, not be placed on the registry of workers as
24   a result of disqualifying criminal convictions.  And
25   the staff recommends that you adopt that PFD and that
0180
 1   order, as well.
 2                 Tab -- skip to tab D briefly.  That is a
 3   motion for rehearing involving a conductor -- bingo
 4   conductor organization who has -- who failed to timely
 5   submit prize fees three times within a year.
 6                 They filed a motion for rehearing.  Today
 7   they submitted a -- and we opposed it initially.  But
 8   today they submitted a voluntary surrender of their
 9   license.  And based on that, the staff is recommending
10   not opposing the motion for rehearing, in fact,
11   recommending that you adopt and grant the motion for
12   rehearing.
13                 The license will then be surrendered.
14   That will then allow them to apply for a new license
15   after the rules, if the rule is adopted, rather than
16   have to wait a year.
17                 MR. ATKINS:  So Commissioner Cox, this is
18   an example of an organization that would be affected by
19   the rule that you voted to publish for public comment
20   today.
21                 The proposal that the staff is making is
22   such that it would allow the organization, if the rule
23   is adopted, to re-apply instead of having to lay out
24   the one year if the denial or revocation becomes final.
25                 CHAIR CLOWE:  And how long would that
0181
 1   re-application process go on, Steve?
 2                 MR. WHITE:  I'm not sure from the time
 3   they submit their new application for new license.
 4   Assuming they get everything in -- Mr. Atkins would be
 5   -- probably be better able to answer that.
 6                 MR. ATKINS:  Yeah.  I would say,
 7   depending on the completeness of the application --
 8   they would be required to submit an original
 9   application -- could require 30 to 45 days.
10                 CHAIR CLOWE:  They could be back in
11   business in two months?
12                 MR. ATKINS:  Conceivably, sure, depending
13   on the time line for the adoption of the rule.
14                 CHAIR CLOWE:  Okay.
15                 MS. KIPLIN:  My understanding,
16   Commissioners, is that the Bingo Division is attuned to
17   these.  And they've actually abated, if you will,
18   proceeding on these kind of cases awaiting the outcome
19   of the commission's decision on -- on the -- on the
20   rulemaking that you acted on today.
21                 This licensee just got caught up in the
22   middle.  And so we took a look at it and said, you
23   know, there's never really a good time to call it the
24   time.  But if there's a way that we could work with
25   them to where he gets the same treatment that would be
0182
 1   consistent with the commission's intent on the
 2   rulemaking, then we have to try to do something.
 3                 CHAIR CLOWE:  Okay.  And?
 4                 MR. WHITE:  And lastly, tab D is another
 5   motion for rehearing involving Sheila (sic) Grimes, who
 6   is an applicant to be on the registry.  Her application
 7   was denied and an order was issued denying her
 8   application to be on the registry as a result of a
 9   disqualifying criminal conviction.
10                 And I've held that off for last because
11   Ms. Grimes is here today and I believe wants to speak
12   to you-all.  Also, Ms. Law could lay out the staff's
13   position.  It was her case.
14                 CHAIR CLOWE:  Commissioner Cox, could we
15   see if we have any questions regarding those dockets
16   represented by the letters A, B, C and E?
17                 COMMISSIONER COX:  I have no questions.
18                 CHAIR CLOWE:  I move the adoption of the
19   staff recommendation.
20                 COMMISSIONER COX:  Second.
21                 CHAIR CLOWE:  All in favor, please say
22   "aye."
23                 COMMISSIONER COX:  Aye.
24                 CHAIR CLOWE:  Aye.
25                 Opposed?  No.
0183
 1                 The vote is two-zero in favor.
 2                 We'll now take up docket number
 3   362-05-990712.B.
 4                 Mr. White?
 5                 MR. WHITE:  Yes, sir.  Again, Ms. Grimes
 6   had applied to be on the registry of workers.  She had
 7   a disqualifying conviction, theft by check.  An order
 8   was issued denying her application to be on the
 9   registry of workers.
10                 She filed a motion for rehearing, which
11   is in your -- in your binder.  The staff opposed the
12   motion for rehearing.  It did not meet the statutory
13   requirements of a motion for rehearing.  No error was
14   alleged.
15                 It is unclear if Ms. Grimes is asserting
16   that she has not been convicted or what exactly -- if
17   there was any alleged error.
18                 The staff's position is, although a
19   disqualifying conviction is not mandatory denial, it
20   certainly seems to be the policy of the commission to
21   not allow workers to be on the registry if they have
22   disqualifying convictions.  And the staff would
23   recommend that you deny Mrs. Grimes -- Ms. Grimes of
24   motion for rehearing.
25                 And Ms. Grimes is here today.
0184
 1                 CHAIR CLOWE:  May we hear from
 2   Ms. Grimes?
 3                 COMMISSIONER COX:  May I ask a general
 4   question before we do that?
 5                 CHAIR CLOWE:  Yes, sir.
 6                 COMMISSIONER COX:  Steve, I considered
 7   asking this question earlier and, in the interest of
 8   time and possibility that I should already know the
 9   answer, I didn't.
10                 Let's just look, for example, at B, page
11   two, item four.  The Texas Lottery Commission may
12   remove an individual's name from the registry of
13   approved bingo workers if the individual has been
14   convicted of a felony, criminal fraud, a gambling or
15   gambling-related offense or a crime of moral turpitude.
16                 Now if I remember correctly, there -- is
17   there also a 10-year requirement, backward-looking
18   requirement?  And I know there is on the lottery side.
19   Is there on the bingo registry side, as well?
20                 MR. WHITE:  If I recall, yes, sir.  And
21   it's 10 years from the -- I could be wrong.  I can grab
22   my act.  I should know that, as well.
23                 COMMISSIONER COX:  I'd like to just hold
24   while we find that out.
25                 MS. KIPLIN:  Sure.  Hang on.
0185
 1                 MR. ATKINS:  And you're talking,
 2   Commissioner Cox, specifically as it relates to removal
 3   from the registry?
 4                 COMMISSIONER COX:  Yes, sir.
 5                 MS. MITCHELL:  And just to clarify,
 6   Ms. Grimes applied.  She's an applicant.  She's not
 7   been on the registry of bingo workers.
 8                 COMMISSIONER COX:  Okay.  Presumably the
 9   criteria would be pretty similar, I would think.
10                 MS. MITCHELL:  Right.
11                 CHAIR CLOWE:  And will you identify
12   yourself for the record?
13                 MS. MITCHELL:  Kristen Mitchell for the
14   record.
15                 MS. KIPLIN:  Are you asking me if there's
16   a 10-year lookback?
17                 COMMISSIONER COX:  Yes.
18                 MS. KIPLIN:  Yes.
19                 COMMISSIONER COX:  Okay.  So if --
20                 MS. KIPLIN:  If you look at one statute,
21   it bootstraps you over to another statute, which is the
22   10-year lookback.  So that applies.
23                 COMMISSIONER COX:  Okay.
24                 MS. KIPLIN:  In my view, that applies.
25                 COMMISSIONER COX:  So what -- what we've
0186
 1   got here, if this statement were complete, is the Texas
 2   Lottery Commission may remove for a felony, criminal
 3   fraud, gambling or gambling-related offense or a crime
 4   of moral turpitude within the last 10 years.
 5                 MR. WHITE:  Yes, sir.  I think it may
 6   actually be from the end of probation or service from
 7   the time.
 8                 COMMISSIONER COX:  Okay.
 9                 MS. KIPLIN:  Mr. White is --
10                 COMMISSIONER COX:  So there's a temporal
11   element in there as well as a mathematical.  And
12   without regard -- I'm looking here strictly at that
13   without regard to the incident case.
14                 What -- I know what a felony is.  And I
15   would have thought criminal fraud was a felony.
16                 MR. WHITE:  Not necessarily.  I guess,
17   you know, there are misdemeanor fraud.
18                 COMMISSIONER COX:  Okay.  So criminal
19   fraud may be a felony, may be a misdemeanor.  But in
20   either case, it could be grounds for disqualification.
21   It's not necessarily because it says may.
22                 MR. WHITE:  I mean, that's correct.  Yes.
23                 COMMISSIONER COX:  Gambling or
24   gambling-related offense, now I know that those were
25   moved to the misdemeanor category for the most part in
0187
 1   1994 or '96, whenever it was.
 2                 Are there any gambling or
 3   gambling-related offenses that are not misdemeanors?
 4                 MR. WHITE:  I believe there are.  I
 5   believe promotion of gambling may be a felony.  And
 6   again, I'm not --
 7                 COMMISSIONER COX:  Okay.
 8                 MR. WHITE:  I don't recall.
 9                 COMMISSIONER COX:  So there could be some
10   that overlap there, too?  Could be both felonies and
11   gambling and gambling-related offenses?
12                 MR. WHITE:  Yes, sir.
13                 COMMISSIONER COX:  Or a crime of moral
14   turpitude?  Now presumably we're talking there about a
15   crime of moral turpitude that is not a felony.
16                 MR. WHITE:  Yes, sir.
17                 COMMISSIONER COX:  Otherwise, we wouldn't
18   need to say that because felony would cover it.
19                 MR. WHITE:  Yes, sir.
20                 COMMISSIONER COX:  Okay.  Could you give
21   me the laundry list of what are crimes of moral
22   turpitude that are not felonies.
23                 MR. WHITE:  It's -- well, theft, for
24   example --
25                 MS. KIPLIN:  Depending on the level.
0188
 1                 MR. WHITE:  Right.  Well, I think any
 2   theft is a crime of moral turpitude.
 3                 MS. KIPLIN:  I'm sorry, Steven.  That --
 4   that would be a felony.
 5                 MR. WHITE:  Right.  Misdemeanor theft is
 6   a crime of moral turpitude.  Certain assaults have been
 7   deemed -- male assault on woman is a crime of moral
 8   turpitude.
 9                 COMMISSIONER COX:  But is it a
10   misdemeanor?
11                 MR. WHITE:  Yes, sir.
12                 COMMISSIONER COX:  Okay.
13                 MR. WHITE:  You know, there are a number.
14                 MS. KIPLIN:  Prostitution.
15                 MR. WHITE:  Prostitution is a crime of
16   moral turpitude.
17                 MS. KIPLIN:  Prostitution.
18                 COMMISSIONER COX:  Okay.  Okay.  So
19   there -- that helps me understand then where the
20   overlap is and where the -- why the distinction between
21   felony and crime of moral turpitude.
22                 So thank you for bringing me up to date.
23   And Mr. Chairman, thank you for indulging my education.
24                 CHAIR CLOWE:  Certainly.  Ms. Grimes,
25   would you come forward, please, ma'am.  Sit down right
0189
 1   there.  And offer her a microphone if you would,
 2   please.
 3                 MS. KIPLIN:  Kristen, can you move that
 4   laptop out of her way so she has room.
 5                 CHAIR CLOWE:  Ms. Grimes, we would like
 6   to make this as comfortable for you as we may.  I'm
 7   sure you're not accustomed to appearing before boards
 8   like this.  I assume you're not an attorney.
 9                 MS. GRIMES:  No, I'm not.
10                 CHAIR CLOWE:  And you'd just like to tell
11   us your side of the story.  Is that right?
12                 MS. GRIMES:  I wasn't able to attend the
13   first hearing because I had just had a cesarean
14   section.  That's why I asked for a rehearing.
15                 CHAIR CLOWE:  Okay.  Now what we have to
16   ask you to do is stay within the record of what was
17   given in that hearing, that proceeding for the
18   administrative law judge.
19                 Counselor, how is she going to do that if
20   she wasn't there?
21                 MS. KIPLIN:  Well, sure.  I think -- I
22   think at this point that Kristen Law or -- pardon me --
23   Kristen Mitchell, you were the attorney for the agency
24   at that time.  And so I think it would be appropriate,
25   if y'all are amenable to this, to having her lay out
0190
 1   what the evidence was of the record.
 2                 And then Ms. Grimes can hear what
 3   evidence was taken.  And that is the record.  That way
 4   I'm hoping that she's not going to be disadvantaged on
 5   knowing what was part of the record.  And generally in
 6   these cases -- I believe this was a criminal history.
 7                 There will be an introduction of the --
 8   of the -- the judgment of conviction or the conviction
 9   orders on that matter.  And so if we could, maybe that
10   would be the best thing to do.
11                 CHAIR CLOWE:  And then Ms. Grimes would
12   try to contain her remarks to responding to what is
13   purported to be the record.
14                 MS. KIPLIN:  Yes.
15                 CHAIR CLOWE:  Is that correct?
16                 MS. KIPLIN:  Yes.
17                 CHAIR CLOWE:  And she can say her side of
18   what the record reflects.
19                 MS. KIPLIN:  Sure.
20                 CHAIR CLOWE:  And stay within the record
21   even though she wasn't there.
22                 MS. KIPLIN:  But let me just set another
23   framework for you or an additional framework.  This is
24   not the first time you've had this case in front of
25   you.  This is on a motion for rehearing that's been
0191
 1   filed by -- by Ms. Grimes.
 2                 And so really the point is for her to
 3   point out where there was error at the hearing level or
 4   at the time that you took up the order.
 5                 CHAIR CLOWE:  Do you understand that,
 6   Ms. Grimes?
 7                 MS. KIPLIN:  It's not to take on
 8   additional new evidence.  It's to point out where there
 9   was error.
10                 CHAIR CLOWE:  Okay.  Talk to Ms. Grimes
11   and help her --
12                 MS. KIPLIN:  Sure.
13                 CHAIR CLOWE:  -- with that understanding,
14   if you would.
15                 MS. GRIMES:  What I don't understand is
16   they said that I applied to be on the registry.  But
17   I've been on the registry for five years now.  I'm -- I
18   will be on there until 2007.
19                 MS. MITCHELL:  Okay.  I misspoke.  I
20   thought you had applied to be on the registry.  Okay.
21                 MS. GRIMES:  That's why I was confused.
22                 MS. KIPLIN:  So this is a removal of the
23   registry case?
24                 MS. MITCHELL:  Yes.
25                 MS. KIPLIN:  Is that correct?
0192
 1                 MS. MITCHELL:  That's correct.
 2                 MS. KIPLIN:  Was it properly noticed, Ms.
 3   Mitchell?
 4                 MS. MITCHELL:  Yes.  We notified
 5   Ms. Grimes of the hearing and the evidence -- she did
 6   not appear at the hearing.  The evidence presented was
 7   that there was a conviction against Ms. Grimes of a
 8   crime of moral turpitude, theft by check from 20 to 500
 9   dollars.  And the conviction date is February 5th of
10   2004.
11                 CHAIR CLOWE:  Okay.  And Ms. Grimes, you
12   understand that what you're entitled to tell us is
13   what, in your view within what she has just said,
14   happened at the hearing is incorrect.
15                 MS. GRIMES:  I'm not denying that I was
16   convicted of that.  However, it wasn't something that
17   was of my fault.  I tried to clear this up with the
18   judge.
19                 And I had gotten married.  So I was
20   calling to look for a check under Shellie Ripley and
21   they told me that there was none or I -- and so that's
22   when I -- I kept trying to pay it, kept trying to pay
23   it.
24                 MS. KIPLIN:  This is out...
25                 MS. GRIMES:  And then eventually they
0193
 1   called or they arrested me for a check that I had been
 2   trying to clear up.
 3                 CHAIR CLOWE:  I got you.  All right.
 4                 MS. GRIMES:  Because my name changed.
 5                 CHAIR CLOWE:  And so you feel you were
 6   wrongfully convicted?
 7                 MS. GRIMES:  Exactly.
 8                 CHAIR CLOWE:  But you do not deny that
 9   there was a conviction?
10                 MS. GRIMES:  Right.  I mean, I -- I
11   assume there's a conviction that came up on my record.
12   I've paid all the costs that I was supposed to pay.
13   But I tried to pay before it came to that.
14                 CHAIR CLOWE:  And -- and do you
15   understand that the commission has certain rules that's
16   set out for bingo workers that they must comply with
17   and there's certain actions that disqualify a person
18   and conviction of the type and kind that you have is
19   one of them?
20                 MS. GRIMES:  I do understand that.  But
21   the point that I'm trying to make -- I mean, I feel
22   like y'all are losing good workers over -- I mean, it
23   doesn't make me do my job any differently.
24                 CHAIR CLOWE:  Sure.
25                 MS. GRIMES:  And it's something that I
0194
 1   took care of that I paid.
 2                 CHAIR CLOWE:  Sure.  The problem,
 3   Ms. Grimes, as I see it -- and I have every sympathy in
 4   the world for you feeling that you were not rightfully
 5   convicted -- is that the commission is bound by rules
 6   that we must follow.
 7                 And where an individual has a conviction,
 8   if in that person's opinion and in their feeling it's
 9   not correct, the commission does not authorize -- is
10   not authorized to go into that.  We -- we have to look
11   at the record and we have to deal with the applicant or
12   the registered worker based on the record.
13                 I don't see that the commissioners, I
14   being one of two, have any leeway to grant you a
15   rehearing on this based on your admission that you do
16   have this conviction.  I have empathy for you.  I would
17   love to help you any way I can within the law.
18                 But I don't see that I'm able to do that
19   based on compassion alone, which I'd have to rely on.
20   I'm not permitted to do that.
21                 Commissioner Cox, do you have any
22   comment?
23                 COMMISSIONER COX:  Unfortunately, I find
24   myself in the same position.
25                 CHAIR CLOWE:  We appreciate you being
0195
 1   here today.  We wish we could help you.  But
 2   unfortunately, I don't believe we can.
 3                 So I'll have to motion -- make a motion
 4   for denial of your request for a rehearing.  Is there a
 5   second?
 6                 COMMISSIONER COX:  Yes, sir.  Second.
 7                 CHAIR CLOWE:  All in favor, say "aye."
 8                 COMMISSIONER COX:  Aye.
 9                 CHAIR CLOWE:  Aye.
10                 The vote is two-zero.
11                 MS. KIPLIN:  Commissioners, may I -- may
12   I address the respondent for just one second, if I
13   might, and say to you that there may be an
14   opportunity -- I don't know -- to see about getting
15   your conviction vacated or something along those lines,
16   in terms of the criminal law process.
17                 And you -- you might want to visit with
18   an attorney who might be able to help you with that.
19   But the conviction is -- the conviction is -- it comes
20   to the commission.  I don't know whether that's helpful
21   to you or not.  I offer that.
22                 CHAIR CLOWE:  If you have the opportunity
23   to consult legal aid in the city where you reside,
24   there are what is called pro bono attorneys.  And
25   that's attorneys who will work for no charge to help
0196
 1   individuals.  And I think what our general counsel is
 2   recommending to you that you seek that kind of legal
 3   counsel.
 4                 MS. GRIMES:  I do have a question.  How
 5   long did you say it would be before I could re-apply
 6   again?
 7                 MS. KIPLIN:  I think it's a one-year -- a
 8   one-year sit-out.
 9                 MS. GRIMES:  But if I still have a
10   conviction, how long --
11                 MS. KIPLIN:  That's right.  I'm sorry.
12   Okay.  The issue is it's a 10-year lookback.  And so
13   from the date of the last -- and I don't know the -- I
14   don't know the terms of the order.
15                 I don't know whether there was a
16   probation.  I don't know whether there was payment.
17   But it would -- the 10 years would start from the date
18   of that act.  And so it's -- that would -- that's a --
19   that's a 10-year lookback where you would be eligible
20   for 10 years.
21                 MS. GRIMES:  And my last question is:  I
22   was approved until 2007.  Does that mean from this date
23   I'm not able to work anymore?
24                 MS. KIPLIN:  Yes.
25                 CHAIR CLOWE:  Thank you for coming.  We
0197
 1   appreciate it.  Anything further, Mr. White?
 2                 MR. WHITE:  No, sir.
 3                    AGENDA ITEM NO. XX
 4                 CHAIR CLOWE:  We'll move on to item 20,
 5   report by the acting executive director and/or possible
 6   discussion and/or action on the agency's operational
 7   status and FTE status.
 8                 Last bite at the apple, Mr. Grief.
 9                 MR. GRIEF:  Commissioners, I have nothing
10   further to report.
11                 CHAIR CLOWE:  Thank you, Mr. Grief.
12                     AGENDA ITEM NO. XXI
13                 CHAIR CLOWE:  Item 21, report by the
14   Charitable Bingo Operations director.
15                 COMMISSIONER COX:  It's been so long
16   since nine o'clock this morning that I don't know
17   whether we have formally thanked Mr. Grief for his
18   service.
19                 CHAIR CLOWE:  You know, I don't think we
20   have.  Would you like to do that?
21                 COMMISSIONER COX:  No, sir.  I'd like to
22   listen to you do it.
23                 CHAIR CLOWE:  Gary, the commissioners
24   voted this morning to give you a performance evaluation
25   which I think clearly reflects their feelings about
0198
 1   your performance these six months.  And the overall
 2   rating is greatly exceeds requirements.
 3                 As I told you during our deliberations,
 4   in my years of -- in service and government
 5   involvement, that's the only time I've ever given that
 6   rating.  I think Commissioner Cox indicated the same
 7   experience.
 8                 It reflects the performance that we feel
 9   you have given during this time as the acting executive
10   director which is, in my mind, the more stressful
11   position than the executive director's position because
12   it's obviously temporary and you would hope that you're
13   going back to where you came from at the end of that
14   period.
15                 During the six months that you served,
16   there were numerous contentious issues that came to the
17   surface.  And you dealt with those in an exemplary
18   manner.  And you kept the agency on track handling its
19   business and performed in a superb way.
20                 Not everybody loves you and not everybody
21   would join, perhaps, Commissioner Cox and myself in
22   saying that you really stepped up and did the kind of
23   job we feel that you did.  But I think that they would
24   agree that you performed and took care of this agency
25   during that time.
0199
 1                 I think it helped -- I think that the
 2   employees in this commission got to see you in a
 3   different role.  And I think you matured and developed
 4   a sense of balance and the maturity that only an
 5   experience like that can bring onto an individual.
 6                 I know that you did not apply for the
 7   executive director's position.  And I want you to know
 8   that, in giving you the rating the commissioners did,
 9   they are saying to you they value you highly in the
10   position of deputy executive director.
11                 I hope that you continue to perform and
12   that opportunities will be open for you in the future
13   which will identify themselves as time passes.  In the
14   meantime, we will rely on you and continue to consider
15   you an asset, as we do all of our employees in this
16   agency.
17                 And I think I can say for Commissioner
18   Cox and myself we look forward to working with you and
19   know that you'll support Anthony Sadberry in his role.
20                 Anything to add, Commissioner?
21                 COMMISSIONER COX:  Thank you, Gary.
22                 MR. GRIEF:  I appreciate those comments,
23   Mr. Chairman and Commissioner Cox.  And I think, if
24   there's one talent that I do bring to the table, I
25   think I allow people -- good people to do their jobs.
0200
 1   And so as you look out into the audience here and you
 2   look at people who aren't here this late hour on a
 3   Friday afternoon, it's those people that make a big
 4   difference.
 5                 And I think together we've weathered this
 6   storm, if you will, over the last six months as a
 7   really strong team.  And it's pulled us together as an
 8   organization.  And I think we'll be better for it on
 9   the other side.
10                 I do look forward to working with Acting
11   Executive Director Sadberry.  I've had an excellent
12   working relationship with him when he was a
13   commissioner here.  And I think commissioners have been
14   very wise in their choice for another acting executive
15   director.
16                 And I appreciate the confidence you've
17   shown in me.  And I appreciate the evaluation and
18   salary increase, as well.  Thank you.
19                 CHAIR CLOWE:  And remember you're
20   at-will.
21                 MR. GRIEF:  I got it.  I got it.
22                 CHAIR CLOWE:  As -- as are Commissioner
23   Cox and myself.  We're all at-will.
24                 Thank you, Commissioner Cox, for that
25   requirement being fulfilled.
0201
 1                     AGENDA ITEM NO. XXI
 2                 CHAIR CLOWE:  Next item 21, report by the
 3   Charitable Bingo direction -- Bingo Operations director
 4   and possible discussion and/or action on the Charitable
 5   Bingo Operations Division's activities.
 6                 Mr. Atkins?
 7                 MR. ATKINS:  Thank you, Commissioners.
 8   Couple of things to point out to my report.
 9                 You'll notice we're transferring vacant
10   audit position to the Austin office.  This is in part
11   due to a recommendation from the enforcement process
12   review that you've received briefings on in the past.
13                 We're going to be creating a compliance
14   specialist in the division who will be focused on
15   coordination of enforcement activities between our
16   division, the enforcement section and the legal
17   division.  Also, one updated number:  We now have 122
18   registered users of bingo services center.
19                 And one last thing.  We are scheduled to
20   hold our first conference of the year to the American
21   Legion.  That will be held January 26th here in Austin.
22                 CHAIR CLOWE:  Great.  Any questions,
23   Commissioner?
24                 COMMISSIONER COX:  No, sir.
25                 CHAIR CLOWE:  Billy, I'm sure you'll find
0202
 1   it very comfortable to work with Anthony Sadberry.  You
 2   have a long history there with him and know him from
 3   way, way back.  And we look forward to seeing you and
 4   he form a good working relationship.
 5                 MR. ATKINS:  I told -- it still came out.
 6   I told Commissioner Sadberry that I was very proud that
 7   the former bingo commissioner was now going to be the
 8   acting --
 9                 CHAIR CLOWE:  That's right.  Thank you,
10   Billy.
11                    AGENDA ITEM NO. XXII
12                 CHAIR CLOWE:  We've move on to item 22,
13   public comment.  Ms. Dawn Nettles wishes to make a
14   comment to the commission.  Will you come forward,
15   Ms. Nettles?
16                 COMMISSIONER COX:  Ms. Nettles is very
17   patient.
18                 MS. NETTLES:  Thank you, Commissioner
19   Clowe and Cox, for allowing me to speak.  I can promise
20   you this is not going to take long.  This has been a
21   long day.  For the record, my name is Dawn Nettles and
22   I'm with The Lotto Report out of Dallas.
23                 I'm going to start first with a couple of
24   comments that I was dying to make when I was hearing
25   y'all talk earlier.  And earlier you-all were talking
0203
 1   about maybe charging more than a dollar for a lottery
 2   ticket.
 3                 And Commissioner Cox, you kind of related
 4   it to a dollar, what it's worth compared to 20 years
 5   ago.  And you said that, in Las Vegas, that they --
 6   there's no longer a dollar table.  And the first
 7   thought that came to me is, well, he's right.
 8                 But those tables in Las Vegas are
 9   equivalent to the scratch tickets that you can do that.
10   But if you'll notice, they still have penny, nickel,
11   dime, quarter, 50-cent, dollar, five-dollar -- shoot, I
12   even heard they have 20-dollar slots now, maybe even
13   more.
14                 COMMISSIONER COX:  You wouldn't believe
15   what they've got.  When I left there in 1987, there
16   were 500-dollar slots.  I don't know how big they are
17   now.
18                 MS. NETTLES:  I really won't go into a
19   mistake I made one time on those slots.  But I never
20   saw the 500-dollar one.  But I know that they're --
21   they're way -- I know they have hundred.  I've seen
22   that.
23                 COMMISSIONER COX:  Sure.
24                 MS. NETTLES:  Anyway, I -- just my
25   opinion, I don't believe you could ever get away with
0204
 1   more than a dollar for Lotto ticket, you know, a
 2   pick-six ticket.  That's just for the record.
 3                 COMMISSIONER COX:  And I'm certainly not
 4   advocating that the staff make any sudden moves because
 5   I realize that, while we've got a lot of dependence --
 6   while the five-dollar players are very important, the
 7   one-dollar players are very important, too.
 8                 MS. NETTLES:  Well, you know, speaking of
 9   Las Vegas, in Las Vegas when they talk about lotteries,
10   they say that the lottery is the only place where you
11   can gamble one dollar and perhaps get millions.  And
12   you can't win that in Las Vegas.
13                 So that is a -- a long-time, old saying.
14   And I just -- I cannot see that that would ever work.
15   But I just wanted to really point out that they still
16   have the penny slot machines.
17                 COMMISSIONER COX:  Okay.  I haven't seen
18   one of those lately, but...
19                 MS. NETTLES:  You haven't?
20                 COMMISSIONER COX:  But I'll take your
21   word for it.
22                 MS. NETTLES:  Well, I could be wrong, you
23   know.  But I think my -- I haven't been out there in a
24   while.  But anyway...
25                 COMMISSIONER COX:  They did have them at
0205
 1   one time.  There's no doubt about it.
 2                 MS. NETTLES:  Yeah.  And I think they
 3   still do downtown.  But I -- anyhow, anybody who plays
 4   for a penny is crazy, anyhow.  But that's -- then the
 5   other thing I wanted to comment on is y'all were
 6   talking about giving the person an option to cash value
 7   after they -- after they win the lottery instead of
 8   making them choose cash value option or annual pay at
 9   the time they purchase their ticket.
10                 And I wanted to -- to tell you-all this
11   or to explain this side of it that nobody did.  In the
12   first place, when somebody buys a lottery ticket, they
13   never anticipate they're going to win.  It's just --
14   it's not even conceivable to them.
15                 So at the time that they purchase that
16   ticket and they mark it annual pay or cash value
17   option, they really don't have any conception of what
18   they're saying.  Now all of a sudden they win and they
19   have to go do a quickie learn about what this is really
20   all about.
21                 I've had so many winners tell me in the
22   last several years that, after they chose cash value
23   option, that they wished they could have chosen --
24   changed it because they found that what was best for
25   them would have been to have taken annual pay.
0206
 1                 But because they were forced into that,
 2   they -- they didn't have the ability to change it.  But
 3   players are very unhappy about not having that and have
 4   been for many years.  So I just wanted to throw that
 5   out there.  It -- you're making somebody -- by having
 6   this, the person has to make a choice not based on any
 7   education or knowledge of what's really facing them.
 8                 The other thing I wanted to tell you-all
 9   about is a real -- I've had a number of interesting
10   calls.  I always get that.  But I think I had one that
11   probably takes the cake that actually made me think
12   about it later.
13                 On New Year's Eve at 10 o'clock in the
14   morning, I received a call from Homeland Security at
15   Bush Intercontinental Airport.  And he was calling me
16   because he had detained some people there at the
17   airport.  And he was perfectly honest.
18                 He didn't believe the people and he
19   needed verification to verify their story.  And their
20   story is that they were Lotto winners.  And he was
21   unable to reach anybody at the Texas Lottery, you know,
22   and identified me.
23                 And he asked if I could assist them to
24   prove what these people were telling him.  Of course, I
25   take a lot of calls.  But that one did get my
0207
 1   attention, like I say.  I did cooperate.  I was able to
 2   confirm the story that these people were giving.
 3                 And I wanted to tell y'all or share that
 4   call with you because I got to thinking later that
 5   maybe -- I got to thinking about other winners, how
 6   this might happen to other winners where they get
 7   detained and they can't verify or prove anything.
 8                 I mean, not that it's the Lottery's
 9   responsibility.  But maybe there needs to be some kind
10   of thought to maybe an emergency number for the Texas
11   Lottery that might be manned 24 hours a day.  I realize
12   there's not very many emergencies.
13                 But I wanted to throw that out at y'all
14   since this did happen.  As a matter of fact, they were
15   truly winners.  I was able to explain and tell them
16   that dollars -- you know, verify that these people were
17   really winners.
18                 And it was a whole group of them.  And
19   they were really being held and they were really not
20   going to get to go anywhere unless they could get
21   confirmation that they were, in fact, who they said
22   they were.
23                 Okay.  The last thing I want to talk
24   about is the proposed rule to Lotto Texas.  I want
25   y'all to know that I'm really very disappointed in the
0208
 1   commission in that, when you-all proposed that rule,
 2   you-all had a very lengthy discussion up here about how
 3   you really wanted to receive comment, how you wanted to
 4   hear from the people, and how you were really going to
 5   listen to them and how you wanted to make sure that
 6   everybody knew what was going on.
 7                 And when I came here on the 19th of
 8   December to comment, at that time and on that day,
 9   there had not been a press release issued.  What was on
10   the TLC Web site was just the chart that showed
11   401.305, all the rule numbers, and just said proposed
12   rule.  There was no explanation, nothing in layman's
13   terms as to what was going on.
14                 The link, it -- what it did is it linked
15   you to the actual rule that was posted at the Texas
16   Register.  And the link was not -- and those links only
17   worked for one week because it linked to a page where
18   it was -- initially appeared.  But then it moves, you
19   know, when the next edition comes out.
20                 And so with no press release and no
21   layman's explanation on the TLC Web site, that told me
22   that you-all really didn't want comment and you didn't
23   get any.
24                 It wasn't until a few days later -- I
25   think that was a Friday.  And I think a few days later
0209
 1   you finally did put a layman's explanation which
 2   consisted of we want to go to -- change the matrix to
 3   six-in-54 and it told the first, second, third and
 4   fourth prize and the percentage allocated to the prize.
 5                 But it didn't tell the people what the
 6   prizes were or what those numbers meant.  They don't
 7   know anything.
 8                 I purposely held off because I knew what
 9   work was involved for me on these comments.  And 10
10   days before the deadline for comment, I posted a form
11   on my Web site.  And I think Sarah can tell you how
12   many comments I got.
13                 And I am pleading with you-all to read
14   those comments.  Yes, it was a form.  However, the
15   third question from the bottom was a totally stupid
16   statement that no one would agree to that's a -- that's
17   a lottery player.
18                 And I put that statement in that form on
19   purpose to prove to you that the people that are
20   filling that form out is, in fact, reading it and they
21   mean what they say.  I believe I turned in right at a
22   thousand comments in that 10 days all the way up to the
23   deadline.
24                 I have many, many more now that I'm not
25   going to turn in.  I'm going to use them for
0210
 1   legislative reasons.  But the people have spoken really
 2   loud.  They have made additional comments.  And all
 3   they're asking for is a fair game, fair payouts and a
 4   guarantee that we receive our share of sales.
 5                 Commissioners, if you-all adopt the rule
 6   that you have before you, it is guaranteed failure.
 7   And it's guaranteed to fail because the prize amounts
 8   are too low and you will thoroughly tick the people
 9   off.
10                 And I hope that you will believe me and
11   read the -- or, you know, read the transcript from
12   where I commented.  And I pray that you will read what
13   the people have taken their time to write on those
14   comments.
15                 Now you-all have kept me entirely too
16   long.
17                 CHAIR CLOWE:  Thank you, Ms. Nettles.
18                 MS. NETTLES:  Thank you very much.
19                 CHAIR CLOWE:  Anyone else wishing to make
20   comment to the commission?
21                 Anything further, Commissioner Cox?
22                 COMMISSIONER COX:  I can't think of
23   anything.
24                    AGENDA ITEM NO. XXIII
25                 CHAIR CLOWE:  Thank you-all.  We are
0211
 1   adjourned.
 2                 (Meeting adjourned at 5:44 p.m.)
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0212
 1                  REPORTER'S CERTIFICATION
 2   
 3   STATE OF TEXAS     )
 4   COUNTY OF TRAVIS   )
 5   
 6            I, David Bateman, RPR, Certified Shorthand
 7   Reporter in and for the State of Texas, do hereby
 8   certify that the above-captioned matter came on for
 9   hearing before the Texas Lottery Commission as
10   hereinafter set out, that I did, in shorthand, report
11   said 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   
16            Witness my hand this the 16th day of January,
17   2006.
18   
19                      ___________________________________
20                      David Bateman, RPR, Texas CSR #7578
                        Expiration Date:  12/31/07
21                      Wright, Watson & Associates
                        Firm Registration No. 225
22                      1801 North Lamar Boulevard
                        Mezzanine Level
23                      Austin, Texas 78701
                        (512) 474-4363
24   
25   JOB NO. 060113DPB