0001 1 * * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 April 19, 2006 8 9 * * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 BE IT REMEMBERED that the TEXAS LOTTERY 17 COMMISSION meeting was held on the 19th of April 2006, 18 from 9:00 a.m. to 9:55 a.m. and from 1:24 p.m. to 1:46 19 p.m., before Kelly E. Fisher, CSR in and for the State 20 of Texas, reported by machine shorthand, at the 21 Offices of the Texas Lottery Commission, 611 East 22 Sixth Street, Austin, Texas, whereupon the following 23 proceedings were had: 24 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. James A. Cox, Jr. 6 General Counsel: Ms. Kimberly L. Kiplin 7 Acting Executive Director: 8 Mr. Anthony J. Sadberry 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX Page 2 Appearances............................ 2 3 AGENDA ITEMS 4 Item No. 1............................. 4 Item No. 2............................. 4 5 Item No. 3............................. 34 Item No. 4............................. 36 6 Item No. 5............................. 36 Item No. 6............................. 37 7 Item No. 7............................. 37 Item No. 8............................. 38 8 Item No. 9............................. 38 Item No. 10............................ 39 9 Item No. 11............................ 40 Item No. 12............................ 41 10 Item No. 13............................ 43 Item No. 14............................ 46 11 Item No. 15............................ 46 Item No. 16............................ 46 12 Item No. 17............................ 59 Item No. 18............................ 61 13 Item No. 19............................ 61 14 Reporter's Certificate................. 63 15 16 17 18 19 20 21 22 23 24 25 0004 1 April 19, 2006 2 CHAIRMAN CLOWE: Good morning. It's 3 9 a.m., April the 19th, 2006. Commissioner Cox is 4 here. My name is Tom Clowe. The Texas Lottery 5 Commission will come to order. 6 We'll move to Item No. 2 on our agenda, 7 "Report, possible discussion and/or action on lottery 8 sales and revenue, game performance, new game 9 opportunities, and trends." 10 Ms. Pyka, good morning. 11 MS. PYKA: Good morning, 12 commissioners. My name is Kathy Pyka, controller for 13 the Texas Lottery Commission. With me to my right 14 this morning are Robert Tirloni, products manager, and 15 David Sizemore, research coordinator. 16 Our first chart this morning reflects 17 revenue in sales -- or revenue from sales and revenue 18 of the state for the week ending April 8, 2006. Total 19 sales through this 32-week period amounted to 2.3 20 billion while our estimated net revenue for the state 21 for this period was 594.1 million. Our physical year 22 2006 sales reflect a 96.7 million increase over fiscal 23 year 2005 sales, and net revenue of the state reflects 24 a 4 percent increase as compared to the 571.2 figure 25 for the same period of fiscal year 2005. 0005 1 As you'll note, our price expense of 2 the percentage of sales has relatively remained the 3 same at 62.7 percent. 4 Our next slide includes the fiscal year 5 2006 year-to-date sales by game. As noted on this 6 slide, 75.2 percent of sales are 1.8 billion form 7 Instant tickets, and 7.6 percent of sales at 178.8 8 million from Pick 3 followed by 6.4 percent of sales, 9 150.7 million from Lotto Texas. And finally, 5.8 10 percent of sales at 137.1 million for Mega Millions. 11 And then this slide provides a 12 graphical representation of the 2.3 billion in sales 13 by game. 14 With that, Robert will move along to 15 our next slide. 16 MR. TIRLONI: Good morning, 17 commissioners. For the record, my name is Robert 18 Tirloni. I am the products manager for the 19 commission. This is the Instant sales broken down by 20 price points. Instant sales year-to-date total 1.8 21 billion, and there's not been much change in the price 22 point break-out. The five-dollar price point is our 23 strongest price point followed by the two. And 24 closely behind that is the 10-dollar price point. So 25 not much change over the past few months. 0006 1 COMMISSIONER COX: Robert, at a future 2 meeting would you give us a history starting with the 3 beginning on price points, when you've introduced the 4 higher ones, and maybe something about the public 5 response to them as they were introduced? 6 MR. TIRLONI: So kind of like a 7 timeline that shows -- 8 COMMISSIONER COX: A timeline and maybe 9 showing, as you get into multiple price points, where 10 it looks like the new price point's business is coming 11 from. Is it new, or is it cannibalizing something, or 12 is it both? To the extent you can tell. I know that 13 you can't be real precise on these things. 14 And also look at, when we introduce a 15 new price point, if there's immediate acceptance and 16 it declines or if there's slow acceptance and it 17 grows. 18 MR. TIRLONI: Sure. We'll look at 19 that. 20 CHAIRMAN CLOWE: Robert, add to that, 21 if you will, the number of games that we have on the 22 street during that similar time. 23 MR. TIRLONI: Sure. 24 CHAIRMAN CLOWE: Total number. 25 MR. TIRLONI: Absolutely. We'll do 0007 1 total and broken down by -- 2 COMMISSIONER COX: That should be about 3 a five-dimensional matrix, and I've got faith in you 4 to do it. 5 MR. TIRLONI: You may have more faith 6 in me than I do. But we'll make that happen for you 7 for a future meeting. 8 Commissioners, we're quickly 9 approaching our Lotto game launch. You-all adopted 10 the Lotto Texas rule on February 27th. And I'm very 11 happy to say that all systems are go for sales to 12 start this Sunday. There are only two more drawings 13 left, tonight and Saturday night, for the current 14 bonus ball game. A week from today will be the first 15 drawing under the 6-of-54 matrix. Our teaser ad 16 campaign has been running since April 10th, and then 17 our launch campaign starts Monday the 24th, the day 18 after sales begin. 19 Staff has worked real hard. All of the 20 software has been tested. Play slips have been 21 printed and delivered. POS is in stores. And so 22 we're real excited about the change, and we've heard 23 very, very positive things from retailers. And our 24 phone staff is also hearing many positive changes from 25 players. So we're excited about the change this 0008 1 weekend. At the next meeting, hopefully, we'll be 2 able to give you some initial sales results from the 3 actual change. 4 COMMISSIONER COX: Robert, where are we 5 on ball set and backup ball sets? Are those things 6 going to be in place? 7 MR. TIRLONI: We talked about that in 8 our task force meeting yesterday. Once they finish 9 this last drawing on Saturday, they'll be testing more 10 ball sets through Dr. Eubank through his statistical 11 tests. There are two ball sets that have already gone 12 through all of the testing and all the -- being 13 weighed at Texas Department of Agriculture. And those 14 are all set and all ready to go for the first drawing 15 next week. 16 I was going to start off this section 17 by telling you we had three impressive jackpots. One 18 of the three was won last night. Mega Millions was 19 won last night in Ohio. We had two second-tier 20 winners in Texas, $250,000 each. 21 Lotto is being advertised at 30 million 22 for tonight. Texas Two Step actually is at a record 23 level jackpot right now for the Thursday drawing. It 24 is advertised at 2.45 million. As I said, that is a 25 record. The previous high was 1.8 million, and we 0009 1 reached that high level back in March of 2003. So 2 almost three years ago since we've seen a jackpot in 3 this range. 4 We don't talk about Two Step that 5 often. A lot of times, we talk about Lotto and Mega 6 Millions and Instants. But I wanted to show you this 7 chart that Kathy's staff prepared because I think it 8 does illustrate that even though Texas Two Step is a 9 much smaller jackpot game in scale compared to Mega 10 Millions and Lotto Texas, it does truly perform as a 11 jackpot game. 12 And you can see the orange bars are the 13 actual advertised amounts. Two Step starts at 14 $200,000. So this would be the starting jackpot that 15 started in late February. And you can see, as the 16 jackpots increase, the sales, which are the -- which 17 is this green line, also responds and also increases. 18 This is through this past Monday's drawing where the 19 jackpot was 2.2 million. 20 And so the point of me showing this to 21 you today is just to show that, like I said, Two Step 22 does operate just like our other jackpot games do. 23 And as the jackpot rises and player excitement and 24 interest increases, so do the sales. 25 The interesting thing here, in my mind, 0010 1 is that the sales from this roll cycle are making up 2 approximately 34 percent of Two Step's total sales for 3 the fiscal year. So that, I think, shows the 4 tremendous impact that a successful roll cycle can 5 have on the game's sales and the game's performance in 6 a year. 7 COMMISSIONER COX: The jackpot really 8 does hike? 9 MR. TIRLONI: Yes, sir. 10 COMMISSIONER COX: Robert, looking at 11 that schedule, I see a couple of things. One, the 12 player is protected from -- we advertised a sale that, 13 obviously, in the early stages, isn't supported. By 14 sales, they get it. 15 MR. TIRLONI: Correct. Two Step has 16 always been an advertised jackpot since its inception. 17 COMMISSIONER COX: No matter what? 18 MR. TIRLONI: No matter what. 19 COMMISSIONER COX: It looks like we 20 break even and go into black about the fourth draw? 21 MR. TIRLONI: That's typically when -- 22 this would be 2 to 25, 250. Usually right around here 23 we're in the black on Texas Two Step. Usually 24 probably mid-300,000 to about 400,000. 25 Commissioners, Director Sadberry is 0011 1 going to give you an update on some research 2 information from Ipsos-Reid on public opinion about 3 the agency. 4 MR. SADBERRY: Good morning, 5 commissioners. For the record, my name is Anthony 6 Sadberry, acting executive director. I have for you 7 this morning the latest survey information from 8 Ipsos-Reid relating to the public perception of the 9 Texas lottery. This information was compiled in the 10 month of March. 11 The first slide addresses the 12 question: "How would you describe your overall 13 opinion of the Texas lottery?" As shown, the 14 percentage of negative responses to this question 15 decreased from 37 percent to 35 percent from February 16 to March, and positive responses remain the same at 41 17 percent over the same time period. Neutral responses 18 increased 2 percent from 22 percent to 24 percent. 19 The second slide addresses the 20 statement: "The Texas lottery is operated fairly and 21 honestly." From February to March the percentage of 22 responses who disagreed with this statement increased 23 from 30 percent to 33 percent while those who agreed 24 with the statement decreased from 53 percent to 47 25 percent. Those neutral with the statement increased 0012 1 from 17 percent to 20 percent. 2 I will continue to provide you with 3 this information on a monthly basis and will be happy 4 to answer any questions. 5 Dr. David Sizemore will provide 6 additional data and analysis with regard to this 7 information. 8 MR. SIZEMORE: Good morning, 9 commissioners. I am David Sizemore, research 10 coordinator with the Texas Lottery Commission. 11 Before I proceed with response to a 12 concern that was raised in the previous commission 13 meeting on why people hold negative opinions of the 14 Texas lottery, it should be emphasized that the 15 numbers that are expressed on this slide are, in 16 fact -- they have a margin of error. The sample sizes 17 are generally from the tracking studies. About 400 18 people responded. 19 A margin of error, for example, that 20 size is roughly five points, five percentage points. 21 So we can fall anywhere from -- in the case of March, 22 42 percent all the way to 52 percent. So there's a 23 significant range that allows us some flexibility. 24 There may be some respondent error. There may be a 25 glitch, as it were. 0013 1 One of the more important concerns for 2 things that we might emphasize is that if we were to 3 place a trend line across each one of the three 4 categories, disagree, neutral, and agree, it would be 5 relatively stable. 6 COMMISSIONER COX: David, on that 7 slide, looking at February of '06 and March of '06, if 8 March of '06 were five percent low and might have 9 factored from 52, February of '06 were five percent 10 high and might have factored at 48, even the trend 11 could be different. 12 MR. SIZEMORE: Correct. 13 COMMISSIONER COX: Tell me, if you can, 14 why we selected a sample size of 400 and are pleased 15 with a five percent plus or minus error rate as 16 opposed to some of the other choices we might have 17 made. 18 MR. SIZEMORE: In terms of the sample 19 size? 20 COMMISSIONER COX: Yes. 21 MR. SIZEMORE: I would have to get with 22 Ipsos-Reid to discuss why each month on the tracking 23 studies they take out 400 people as opposed to a 24 larger or smaller standpoint. My impression is that 25 somehow this is a market standard for surveying on 0014 1 tracking measures each month. Plus, it's relatively 2 quick. Now, this is off the top of my head. Again, I 3 would rather consult with them to give you a more 4 confident response. But it's easier to get 400 people 5 each month than it is to get a much larger sample each 6 month. Given the way telephone surveys are going, 7 people are not responding to it. 8 COMMISSIONER COX: As far as their job 9 being easy, that's not real important to me. The 10 important thing to me is that we gather the data that 11 we need. One of the things that Ipsos-Reid has done 12 in the past, and I don't fault them for this, is they 13 have filled some voids, made some decisions that I 14 think were ours to make. We've had extensive 15 discussions with them about that. I think to the 16 extent you can find areas where we don't know why 17 they're doing it that way, but they are, let's get in 18 and be sure that they have our input and that we're 19 doing it the way we want to, for the purpose that we 20 want, not because it's easy for them or even because 21 it's industry standard. 22 MR. SIZEMORE: Well, we can certainly 23 require that they change the size of the sample each 24 month. 25 COMMISSIONER COX: And I'm not 0015 1 suggesting that at all. I'm just suggesting that it 2 be the size of sample at the confidence level that we 3 believe is appropriate for our needs. 4 MR. SIZEMORE: Of course, there may be 5 some cost issues involved. However, I don't think 6 that's -- 7 COMMISSIONER COX: There always are. 8 MR. SIZEMORE: There always are. And 9 we would have to jump up considerably to actually 10 reduce the margin of error. 11 COMMISSIONER COX: Maybe this is just 12 right. I just want to be sure that we have looked at 13 it and we made the decision that this is what we 14 wanted. 15 MR. SIZEMORE: Very good. 16 CHAIRMAN CLOWE: Notwithstanding the 17 mechanics of the survey, I would be interested in the 18 answer to the question, "Why?" Is it possible to go 19 beyond a yes or no answer or neutral and make some 20 determination of what people are thinking when they 21 give their answer? 22 MR. SIZEMORE: Absolutely. Usually we 23 can use follow-up questions and probe a little more 24 deeply for any given response. So if people have a 25 negative opinion, for example -- which is exactly what 0016 1 Robert said just now. That's a fine segue to what 2 follows here. We can ask them more in-depth questions 3 and allow them an opportunity to respond in an 4 open-ended fashion so that if they have a negative 5 opinion, we simply ask, "Why do you hold that 6 opinion?" They'll tell us, essentially, what they're 7 thinking. And that's what these next two slides 8 actually reflect. This is directly in response to 9 what's been raised previously, in a similar vein, that 10 we wanted to know why are people who hold negative 11 opinions holding those negative opinions. 12 Now, I should emphasize at the 13 beginning that this material is drawn from the 14 segmentation study. We can have much more confidence 15 in the segmentation study because it's a larger 16 sample. What it does not do, however, is give us a 17 sense of what's going on from the month-to-month 18 shifts. And recently we have -- for the fair and 19 honest question, we've abandoned it in favor of other 20 questions we were interested in for each monthly 21 tracking survey. And I think that was late last year 22 that we ended up stopping the probing questions for 23 fair and honest, fair and honest measure, follow-up 24 questions. 25 We do, however, have the follow-up 0017 1 questions for the general opinion of the Texas 2 lottery. And I can give you that for March here 3 momentarily. Unfortunately, I didn't put it in the 4 slide. This slide represents the segmentation 5 material open-ended responses for why folks who have a 6 negative opinion about the Texas lottery overall 7 actually have that opinion. 8 Most notably, of course, you see a 9 couple of significant jumps numerically, at least. 10 Folks at the bottom, bottom columns, the bottom row, 11 most people are essentially just against gambling or 12 they don't play lottery games, and that's the reason 13 they hold a negative opinion. 14 COMMISSIONER COX: You say, David, 15 "most people." Are we, through this survey, able to 16 determine that, in fact, most of the people we talk to 17 are against gambling? 18 MR. SIZEMORE: No, that isn't what I 19 meant to suggest. I should rephrase what I'm trying 20 to say. This doesn't necessarily mean that most 21 people are against gambling. That's just 32 percent 22 of those people who hold a negative opinion of the 23 Texas lottery. So for the blue 2005 sample size was 24 436. So about 32 percent of those folks. 25 COMMISSIONER COX: So the blues add up 0018 1 to 100? 2 MR. SIZEMORE: Thirty-two percent -- 3 yes, they should, correct. 4 COMMISSIONER COX: But the reds clearly 5 don't. 6 MR. SIZEMORE: Not all categories are 7 actually represented here. So there are other items 8 that are included that people raise that fell out 9 of -- I think in most cases it was pulled over for 10 2005, 100 percent of respondents. So if it's less 11 than 3 percent, that's not actually included here, 1 12 percent, .5 percent, and so on. 13 CHAIRMAN CLOWE: I think this goes to 14 the answer to my question about what people have in 15 their minds when they answer that question 16 negatively. You always want to read in what you're 17 thinking. We start off with about a third of the 18 people not liking gaming to begin with. And then when 19 you get bad publicity, which I think this agency 20 received about the prize payoff, you see that jump 21 from -- what is that? One percent to 10 percent, that 22 is circled up there? 23 MR. SIZEMORE: Correct. 24 CHAIRMAN CLOWE: That's a general -- 25 COMMISSIONER COX: What is the caption 0019 1 on that one? 2 MR. SIZEMORE: It says, "General 3 Scepticism About Operations At Lottery." 4 CHAIRMAN CLOWE: I think that 5 represents -- because of an issue, that item, in my 6 mind, went from 1 to 10 percent. So you can add that 7 10 to the 32 percent down below. And then we've 8 always lived with that we don't know where the money 9 goes. That's another 20 percent. 10 MR. SIZEMORE: Or it's a waste of 11 money. Poor odds. 12 CHAIRMAN CLOWE: Beg your pardon? 13 MR. SIZEMORE: The other two, 8 and 9, 14 in the middle -- 15 CHAIRMAN CLOWE: Funds not going to 16 schools/education, next to the bottom one? 17 COMMISSIONER COX: Your eyes are better 18 than mine. 19 CHAIRMAN CLOWE: I'm squinting. But 20 that goes to the issue that people don't know where 21 the money goes. 22 MR. SIZEMORE: Correct. 23 CHAIRMAN CLOWE: And so if you add 24 those, you're over 50 percent. 25 COMMISSIONER COX: So the first one is 0020 1 a misrepresentation of -- 2 MR. SIZEMORE: Or inflated prize 3 amounts. If you like, I can read each one. 4 COMMISSIONER COX: No, that's okay. 5 That's a subset, probably, because some people said 6 that specifically, and some people, as the chairman 7 said, probably included that in "General Scepticism 8 About Operation At Lottery." 9 CHAIRMAN CLOWE: I would rank those 10 together. 11 COMMISSIONER COX: Yes. I like the way 12 you analyzed that. 13 CHAIRMAN CLOWE: To me there are about 14 a third of the people in the state who don't like what 15 this agency is responsible for. And then when you get 16 negative -- I don't think it's fair to say "negative 17 publicity," but when you get a negative occurrence 18 that people know about, to me, that percentage rises 19 quickly to over 50 percent. 20 COMMISSIONER COX: Sure, it does. What 21 you see also up there, as you pointed out, 1 and 3 22 account for more than all the change. 23 CHAIRMAN CLOWE: That's it. 24 COMMISSIONER COX: The others must be 25 pretty static. 0021 1 CHAIRMAN CLOWE: Yes. And I think what 2 we do here, I've said so many times, is very 3 controversial. We are not going to ever, in my 4 opinion, nor should we try, to win over people who 5 don't want legalized gaming. We want to be respectful 6 of that viewpoint and be beyond reproach as far as the 7 question of fairness and honesty. But any question of 8 that will cause a bump in the negative views of this 9 agency, which is legalized gaming in the state of 10 Texas. 11 I think you see that, for example, with 12 the TABC where the issue of their law enforcement was 13 in the media. I think there's an agency that 14 generally has a low profile. But when it got the kind 15 of coverage it did, there was an immediate negative 16 reaction to what they seem to think was law 17 enforcement that was well balanced. And we deal with 18 that constantly here, where other agencies don't have 19 that kind of a situation. 20 COMMISSIONER COX: Exactly. 21 One of the things, David, that occurs 22 to me here is that in the work Professor Huff and 23 Dr. Jarrett have done, they have separated the 24 factors, if you will, between controllable and 25 uncontrollable. And it looks to me like up here that 0022 1 we have a bit of that too. As the chairman points 2 out, we're not going to be able to do anything about 3 "against gambling, don't play," and it's not our job 4 to do anything about that. It's probably our job not 5 to do anything. 6 CHAIRMAN CLOWE: That's right. 7 COMMISSIONER COX: But there are 8 certain things up there, like 1 and 3, and maybe some 9 others that I can't read, that we might have something 10 to do with. And so at least if we're going to try to 11 work these numbers and address the concerns that 12 people have, they would fall in things like 1 and 3. 13 And I wonder if you might do this thing 14 again for next time and try to group these into 15 controllable and uncontrollable, or however you think 16 they might group, so that we can see, maybe over time, 17 to the extent you have this data over time, what's -- 18 what are the controllable factors and what can you 19 find in the clipping service that might have caused 20 that. 21 MR. SIZEMORE: Say that again? In the 22 what service? 23 MR. TIRLONI: News clippings. 24 COMMISSIONER COX: Or just some of the 25 people who have been around a while, they'll be able 0023 1 to tell you, "Oh, that was when X happened." 2 MR. TIRLONI: And to follow up on what 3 you-all just said, commissioners, for example, that 4 "don't know where the proceeds go, funds not going to 5 schools/education, waste of money," I think we can 6 probably group that into one. We currently are 7 working with the ad agencies on a beneficiary 8 campaign -- 9 COMMISSIONER COX: "Don't know where 10 the proceeds go" is something we have some control 11 over. 12 MR. TIRLONI: Yes, exactly. We're 13 making an attempt through that beneficiary campaign to 14 maybe address some of those which, as you said, we do 15 have control over. 16 CHAIRMAN CLOWE: That's an important 17 category, and always has been, that it remains almost 18 20 percent of respondents. My sense is we are hearing 19 now from the leadership and the legislature that it's 20 okay to tell people where the money goes, where in 21 past times that was not permitted. And so I think we 22 could increase our awareness through the beneficiary 23 program of that and at least work on that 20 percent 24 of the respondents. 25 MR. SIZEMORE: It's interesting, along 0024 1 similar lines, in what Massachusetts does with their 2 advertising and beneficiary notifications. They have 3 posted on their websites, for example, any number of 4 action-like photos and pieces of material that express 5 very clearly where the money's going, to the block of 6 a specific firehouse that receives the funds that they 7 collect. Massachusetts adjusts pretty well with the 8 sales. 9 CHAIRMAN CLOWE: I just think you have 10 to be very sensitive there because you must, as I've 11 said before, be respectful of people that don't like 12 legalized gaming. And they generally don't want that 13 kind of advertising because they feel like -- if I can 14 speak for that group, it encourages people to game, 15 and it makes them think it's okay. And they don't 16 like that. 17 So I think in Texas our line is a 18 little finer, and we must be very well balanced in 19 that -- we've talked about this before -- we move very 20 gently and take very small steps. But I think we can 21 focus on that group. We can't mount an all-out 22 campaign and say, "It's okay to play the lottery 23 because the money goes to foundation and school 24 funds." That's not acceptable. 25 But to answer the question, "Where does 0025 1 the money go" in a passive and well-balanced way is 2 more acceptable now than it's ever been, in my 3 knowledge. 4 Did I express that adequately? Do you 5 understand? 6 MR. SIZEMORE: Yes, sir, it's very 7 clear. I understand. 8 CHAIRMAN CLOWE: It's not an easy 9 thing. 10 MR. SIZEMORE: Sometimes I think we may 11 be caught between a rock and a hard place. We want to 12 do it and make it clear, but . . . 13 CHAIRMAN CLOWE: It's a challenging 14 problem. It's having a product that you have 15 difficulty in advertising. It's, I think, somewhat 16 similar to what the tobacco people and the alcohol 17 people face, because there is a group that doesn't 18 want either. And it makes -- it's not like 19 advertising Coca-Cola. It's very challenging. I envy 20 you the opportunity. 21 COMMISSIONER COX: David, are these 22 questions that we, the Texas lottery, developed, or 23 did Ipsos-Reid develop these questions? 24 MR. SIZEMORE: Actually, in the meeting 25 with Mr. Sadberry and Mr. Grief and Robert yesterday, 0026 1 I asked what the origin of these questions were. 2 You might be better able to explain 3 it. Several years ago, one of the -- 4 MR. TIRLONI: I believe the reason why 5 the "fair and honest" and "overall opinion of the 6 lottery," why these questions were first introduced 7 into the monthly tracking, I was told that that was a 8 request by a previous chair, Chair Myers, during some 9 tumultuous times in the agency's past to try to gauge 10 public opinion and public feeling. 11 COMMISSIONER COX: I understand that. 12 That's the impression I have as well. But as to these 13 line items here, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11. 14 MR. SIZEMORE: These are open-ended 15 questions. Given that explanation, Robert's 16 explanation, we developed the question itself. It's 17 an open-ended opportunity for -- 18 COMMISSIONER COX: How long have we 19 been asking that question? 20 MR. SIZEMORE: I might have to look at 21 previous years. I think it's been at least six years. 22 COMMISSIONER COX: So given that it's 23 an open-ended question, there is no statistical number 24 that you can lay on us in terms of reliability? 25 MR. SIZEMORE: Significance? 0027 1 COMMISSIONER COX: Uh-huh. 2 MR. SIZEMORE: Well, if we paired it up 3 with other variables, we might be able to do 4 something. 5 COMMISSIONER COX: Interesting 6 anecdotal information? That's a question. 7 MR. SIZEMORE: Well, that's a good 8 question. I would put some validity on it in that 9 it's clear if someone says, "Well, you're targeting 10 the poor," that's the way they feel about it, and it's 11 7 percent. If it's generalizing the entire population 12 of Texas, that's a different question, statistically 13 significant. But clearly if we see that, over and 14 over again, 7 percent of the people who feel this way 15 about the lottery negatively say we're targeting the 16 poor, and it's a consistent trend over time, I 17 wouldn't put that down as a reliable response. 18 COMMISSIONER COX: I'm not saying it's 19 unreliable. I'm just saying you can't really attach 20 any statistical reliability, would be my guess. 21 You're letting them free-form the doggone thing 22 instead of respond to a specific question. 23 MR. SIZEMORE: Right. And there are 24 some issues, I suppose, with how things are coded to 25 begin with. 0028 1 COMMISSIONER COX: There would be, 2 sure. If somebody's going to say something off the 3 wall, you got to fit it in the slot. 4 MR. SIZEMORE: Absolutely. Clearly, 5 there are some problems along those lines. 6 But short of providing a series of 7 responses that we can give, sort of, a scale response 8 to, 1 to 7, for example, this is -- 9 COMMISSIONER COX: Or just say, "Here 10 are 10 choices. Check one." 11 MR. SIZEMORE: Sure. "Which one do you 12 feel most strongly about?" 13 COMMISSIONER COX: There are a couple 14 of things to consider on anything like this. One is 15 it's nice to have comparable data over the years. And 16 the other is it's nice to have the right questions. I 17 hope you'll look at these from the standpoint that, 18 given we would like to have the historical reference, 19 are these pretty much the right questions, or does 20 this thing need to be overhauled to get the kind of 21 data that today we're looking for. 22 MR. SIZEMORE: Obviously, it would be 23 nice to get a sense of how you, the commissioners, 24 feel we should proceed on something like this, a 25 specific sense or range of issues that you might want 0029 1 to capture with this kind of data, if this, in other 2 words, isn't working in the way you think it should. 3 COMMISSIONER COX: I didn't mean that 4 at all. I meant let's always try to do better. If 5 this isn't optimal, let's try to optimize, unless the 6 comparable historical data outweighs the value of any 7 change. 8 MR. SIZEMORE: One more slide. 9 CHAIRMAN CLOWE: Just a second. 10 Director Sadberry, do you have any 11 comment on this from the time that you were on this 12 board, in your observations? 13 MR. SADBERRY: As Dr. Sizemore 14 indicated, Chairman, we did explore this matter 15 yesterday. For my purposes it was to get a background 16 and a refresher, in fact, given that I had heard your 17 concerns and interests at the previous meeting on 18 doing something with this data that is helpful and 19 beneficial to the agency. 20 I might add that at the meeting in 21 Washington, D.C., last week -- two weeks ago -- I will 22 comment on that later in the meeting in my report. 23 But we did have an opportunity to meet with the 24 Ipsos-Reid informally, representatives, to go into 25 this subject area in greater detail. There is a 0030 1 meeting scheduled here on May 19th that will give us 2 the opportunity to delve further into it. 3 At this point I believe my sense is in 4 concurrence with what I'm hearing in the 5 commissioners' discussion, and that is, "Exactly what 6 does this information mean, and how do we use it?" 7 I'm more interested in that. How do we use it to 8 understand -- I would say I would concur with the 9 significance of controllable versus uncontrollable 10 factors and to recognize there is an importance, 11 first, in understanding that, and secondly, to take 12 the controllable factors and the information we gain 13 from that to see how we might target it for use within 14 the agency, structure what things we need to see, if 15 there are areas of possible improvement and need for 16 improvement, and otherwise whether there's even a 17 reason to be concerned except to note the trends. 18 Right now I cannot say that we can use 19 this information as effectively as it potentially 20 could be used, because up to this point it has been 21 treated, my sense is, a more anecdotal or historical 22 information and data, reliable though it may be. What 23 I think -- I sense is on a going-forward basis, 24 particularly given our anticipated meeting next month, 25 we will be able to understand and use better and more 0031 1 effectively the information that can be gained from 2 this research exercise. 3 At this point I think it's helpful to 4 know -- I think, from my view, it's a starting point, 5 a going-forward opportunity for us that I think can be 6 helpful, can be valuable. I certainly agree that 7 having a structure of questions asked and knowing what 8 to do with the information we gain from that is an 9 opportunity for us that is not fully utilized at this 10 point as much as I think it can be and I expect it 11 will be in the future. 12 MR. SIZEMORE: Finally, the last slide 13 provides a more specific picture of why people who 14 have a negative response to the "fair and honest" 15 measure actually hold that view. You'll see here what 16 I've done is actually collapsed the -- similar to what 17 you just suggested with the last slide -- collapsed 18 all the fiscal responses, those issues that have to do 19 something with the funds being misappropriated, not 20 going to education, or perceived to not go to 21 education, people not knowing where the money goes and 22 thinking that there's a better place for the funds. 23 Thirty-two percent of respondents in 24 this case said the reason why they hold a negative 25 opinion of the lottery has to do something with one of 0032 1 these fiscal issues. Followed by that, of course, is 2 that the lottery is unfair, dishonest, or fraudulent, 3 about 28 percent, more or less, followed by "lacking 4 information, just an impression, there are no winners, 5 gambling is wrong." These won't necessarily add up to 6 100 because, again, there are other variables and 7 responses that people gave. 8 I think it's useful to note at this 9 point that if we collapse at least -- well, let's 10 start from the "unfair" position first. In survey 11 instruments like this, when people don't have a 12 response or they're uncertain about how to respond, 13 they tend to or may, in fact, parrot the questions 14 being asked. And that's exactly what we see here. 15 They're asked, "Do you think the 16 lottery is operated fairly and honestly?" They say, 17 "No," and they're asked, "Why," and they respond, 18 "Because it's dishonest." That's a circular 19 argument. It doesn't really tell us anything, which 20 may get to Commissioner's Cox's concern that we need 21 to start asking better questions. Then you put 22 together with "dishonest, just my impression, and lack 23 information," roughly 50 percent of people really 24 don't have a good response to this question. 25 COMMISSIONER COX: If you say, 0033 1 "unfair," I could argue that that should be grouped 2 with "no winners." 3 MR. SIZEMORE: Sure. 4 COMMISSIONER COX: So there are lots of 5 ways you could cut this thing. But what I hear you 6 saying is that half the people aren't giving a 7 response that we can even respond to. The others 8 aren't all that clear. 9 MR. SIZEMORE: Yes. 10 That's it. Do you have any questions? 11 COMMISSIONER COX: Are we required by 12 statute to do these surveys, do surveys of any kind? 13 MR. SIZEMORE: I haven't done a 14 demographic study. 15 MR. TIRLONI: I'm looking to Kim. But 16 I don't believe there's a statute that requires 17 monthly tracking. 18 COMMISSIONER COX: Are there further 19 statutes, I'll ask Kim, that require annual or 20 biannual tracking? 21 MS. KIPLIN: My immediate answer is "I 22 don't know." But I'll take a look at it. 23 COMMISSIONER COX: One of the 24 possibilities always is if this data isn't useful, 25 maybe we shouldn't be gathering it; although, 0034 1 obviously, there are perceptions, when you stop 2 gathering data, that have to be carefully considered. 3 CHAIRMAN CLOWE: Anything further? 4 MR. TIRLONI: No, sir. 5 CHAIRMAN CLOWE: Thank you very much. 6 Next, Item 3, "Report, possible 7 discussion and/or action on transfers to the State." 8 Ms. Pyka. 9 MS. PYKA: Thank you. Commissioners, 10 for the record, Kathy Pyka, controller for the Texas 11 Lottery Commission. 12 Tab 3 in your notebook includes 13 transfers to the State. The first report in your 14 notebook reflects the transfers and allocations to the 15 Foundation School Fund and the allocation of unclaimed 16 prizes as of April 2006. Total transfers during this 17 time period amounted to 604.1 million. This does 18 represent a 2.5 percent increase over the total amount 19 transferred in April of 2005. 20 The second page in your notebook 21 includes detailed information for the monthly 22 transfers. On this document you'll find that of the 23 604.1 million-dollar transfer to the State, 576.7 was 24 the amount transferred to the Foundation School Fund 25 with a balance of 27.4 million transferred from 0035 1 unclaimed lottery prizes. 2 And then last -- the last document in 3 your notebook includes a report of lottery sales, 4 expenditures, and transfers from fiscal year 1992 to 5 date. And this document notes the total cash basis 6 transfers to the Foundation School Fund through April 7 of this year total 576.7 million with a cumulative 8 transfer to the Foundation School Fund of 8.2 9 billion. 10 This concludes my presentation. I'll 11 be happy to answer any questions. 12 CHAIRMAN CLOWE: Kathy, are we on 13 target as to the projections for this fiscal year? 14 MS. PYKA: Yes, Mr. Chairman, we are. 15 The biannual revenue estimate was projected with a 16 3.291 million sales estimate or a 954 million-dollar 17 transfer estimate. In looking at our current sales 18 data, we have certainly looked at some projections and 19 believe we'll meet those targets about the second week 20 of July this fiscal year. So we've provided the LBB 21 with some more revised -- or I'd say more current 22 estimates noting where we believe we'll be by the end 23 of fiscal year 2006. And we believe we'll transfer 24 slightly over -- looking at the transfers to the 25 Foundation School, slightly one over one billion this 0036 1 fiscal year. 2 CHAIRMAN CLOWE: Thank you very much. 3 MS. PYKA: You're welcome. 4 CHAIRMAN CLOWE: Next, Item 4, "Report, 5 possible discussion and/or action on the procurement 6 of advertising services." 7 Mr. Jackson. 8 MR. JACKSON: Good morning, 9 commissioners. For the record, my name is Tom 10 Jackson, purchasing and contracts manager for the 11 commission. Agenda Item No. 4 in your notebooks was 12 included as a placeholder for any questions you may 13 have regarding the advertising RFP. However, I will 14 give you a brief update. The responses to proposers' 15 questions was submitted and posted on the Texas 16 Marketplace and the Internet, our web page, on 17 Wednesday, April 5th. Responses for the RFP are due, 18 I believe, Wednesday of next week. That would be the 19 26th. I'll answer any questions you may have. 20 CHAIRMAN CLOWE: Thank you, Tom. 21 Next, Item 5, "Report, possible 22 discussion and/or action on the Mega Millions game 23 and/or contract." 24 Mr. Grief. 25 MR. GRIEF: Good morning, 0037 1 commissioners. For the record, my name is Gary 2 Grief. I'm the deputy executive director. And I have 3 nothing new to report to you today regarding Mega 4 Millions. 5 CHAIRMAN CLOWE: Thank you, Gary. 6 Next, Item 6, "Report, possible 7 discussion and/or action on the GTECH Corporation." 8 Director Sadberry. 9 MR. SADBERRY: Commissioners, again, my 10 name is Anthony Sadberry. For the record, I'm acting 11 executive director. At this time there is no further 12 substantive information or reports to give you. I 13 will keep you advised as further information becomes 14 available. 15 CHAIRMAN CLOWE: Thank you, sir. And 16 do you have any comments on Item 7, which is 17 "Consideration of and possible discussion and/or 18 action on the lottery operator contract," et cetera, 19 et cetera, at this time? 20 MR. SADBERRY: I do not at this time. 21 CHAIRMAN CLOWE: You see no need for us 22 to consider deliberation of that contract in executive 23 session? 24 MR. SADBERRY: That is correct. 25 CHAIRMAN CLOWE: Any comments? 0038 1 COMMISSIONER COX: No, sir. 2 CHAIRMAN CLOWE: Thank you, sir. 3 Next, Item No. 8, "Report, possible 4 discussion and/or action on the drawings audit 5 services contract and/or procurement." 6 Mr. Jackson. 7 MR. JACKSON: Commissioners, for the 8 record, again, my name is Tom Jackson. 9 The State Auditor's Office has 10 delegated the authority to exercise a one-year renewal 11 option under the existing contract with Davila & 12 Bauschorn Associates back to the Texas Lottery 13 Commission. This is just an update for your 14 information. Happy to answer any questions. 15 CHAIRMAN CLOWE: And then the next item 16 is also yours, No. 9, Mr. Jackson, "Discussion and/or 17 action" -- 18 COMMISSIONER COX: If I could, I do 19 have a question on that. 20 CHAIRMAN CLOWE: Yes, sir. 21 COMMISSIONER COX: Tom, what would be 22 the process of deciding whether to grant that one-year 23 extension on that contract? Would Catherine Melvin be 24 involved in that decision? 25 MR. JACKSON: Yes, she has been 0039 1 involved in that. She was the one that requested the 2 letter to the SAO and received the response. 3 COMMISSIONER COX: Thank you. 4 CHAIRMAN CLOWE: Tom, the next item is 5 yours, No. 9, "Report, possible discussion and/or 6 action on the agency's contracts." 7 MR. JACKSON: In your notebook is a 8 report on prime contracts that we do on a regular 9 basis. I'll be happy to answer any questions you may 10 have on those prime contracts. 11 CHAIRMAN CLOWE: Thank you, sir. 12 Next, Item 10, "Report, possible 13 discussion and/or action on the 79th Legislature." 14 Ms. Trevino. 15 MS. TREVINO: Good morning, 16 commissioners. For the record, I'm Nelda Trevino, the 17 director of governmental affairs. As you're aware, 18 the special session began this last Monday on April 19 the 17th. As of this date there have been 100 bills 20 that have been filed. No bills that have been filed 21 affect the lottery commission. Numerous house and 22 senate committees are holding hearings to discuss 23 various interim charges and also to consider some of 24 the bills that have been filed. We are monitoring 25 some of these hearings and also monitoring bills that 0040 1 are filed and will certainly keep you posted on any 2 developments related to the special session. And that 3 concludes my report. I'll be happy to answer any 4 questions. 5 CHAIRMAN CLOWE: Thank you, ma'am. 6 Next, Item 11, "Report, possible 7 discussion and/or action on the agency's strategic 8 plan for 2007 through 2011." 9 Mr. Grief. 10 MR. GRIEF: Good morning, again, 11 commissioners. For the record, my name is Gary 12 Grief. And I have with me today Mr. Robert Elrod from 13 our media relations department, who will be giving you 14 an update on the progress we're making in the 15 development of our agency strategic plan. 16 MR. ELROD: Good morning, 17 commissioners. I'm Robert Elrod from the media 18 relations division. On April 7th the office of the 19 controller submitted the agency's requested budget 20 structure and performance measure changes to the 21 governor's office of budget planning and policy and 22 the LBB. 23 Earlier this week we held an extended 24 work session with all of the directors to develop 25 improvements to the external/internal assessment 0041 1 section of the plan. 2 I'm currently in the process of 3 incorporating the results of that session, along with 4 Kathy Pyka's revisions, into the second draft of the 5 report, which will be distributed to the directors 6 later this week. This draft will also contain several 7 required appendices, including the agency's five-year 8 workforce plan, HUB plan, and S-O-E summary. 9 That's all I have. 10 CHAIRMAN CLOWE: Thank you, gentlemen. 11 Next, Item 12, "Consideration of and 12 possible discussion and/or action on external and 13 internal audits and/or reviews relating to the Texas 14 Lottery Commission and/or the Internal Audit 15 Department's activity." 16 Ms. Melvin. 17 MS. MELVIN: Good morning, 18 commissioners. I'd like to provide an update on 19 external audits of the agency. I would first begin 20 with the security audit. The State Auditor's Office 21 has concluded their audit in that area. Last week 22 they provided the agency with a draft report. As laid 23 out in the statute, there will be two separate 24 reports, a confidential report that is more detailed, 25 and then a summary public report. 0042 1 Because these reports are still in 2 draft status, I'm not at liberty to share with you 3 some of the draft issues that are in that report, but 4 I can tell you that the State Auditor's Office is 5 anticipating a May 3rd report release date. They've 6 asked for agency management responses to be submitted 7 to them by the 26th, which is just next week. 8 Two other audits that you're aware of 9 that are ongoing, just briefly, to update, the human 10 resources audit. They have concluded their work on 11 that audit and are currently still anticipating a June 12 2006 report release date. And for Lotto Texas they're 13 at the tail end of their field work but also 14 anticipating a June report release date. 15 And then finally, a new audit from the 16 State Auditor's Office, Mr. Kels Farmer from their 17 office was -- attended a regularly scheduled status 18 meeting that we have every two weeks on these audits. 19 And at that meeting he introduced a new audit, which 20 is the procurement review. And we held a conference. 21 Commissioner Cox was in attendance. 22 And just very briefly, there are three 23 objectives for that audit. The audit is anticipated 24 to cover purchasing here at the lottery commission, 25 contract management, and administration. And then 0043 1 finally, a follow-up of two previous audits that the 2 SAO has conducted. Those audits contain some 3 contractor purchasing issues. One is an audit from 4 1997 and another in '04. 5 And that's all I have today. 6 Commissioners, if you have any questions. 7 CHAIRMAN CLOWE: Catherine, there is an 8 internal audit underway on the audit function in the 9 Charitable Bingo Division. 10 MS. MELVIN: Yes, sir. 11 CHAIRMAN CLOWE: Do you have any report 12 for us on the progress of that? 13 MS. MELVIN: I'm not ready to outline 14 issues at this point, but you can anticipate, likely, 15 I would say, by next month. We are winding down that 16 audit. My field work is close to completion. I'm at 17 the stage where I'm drafting issues. I'm working with 18 Bingo Management to ensure that I have my issues 19 correct and accurate and that it's a fair presentation 20 of what we're finding. But you can anticipate that 21 possibly within the next month. 22 CHAIRMAN CLOWE: Very good. Thank 23 you. 24 MS. MELVIN: Thank you. 25 CHAIRMAN CLOWE: Next, "Item 13, 0044 1 Consideration of possible discussion and/or action on 2 the appointment and employment of an Executive 3 Director." 4 Commissioner Cox, I don't have anything 5 to bring to your attention at this time. I'm not 6 aware of any additional applications. Ms. Morris is 7 here. 8 Could I ask you to come up and confirm 9 that to us or tell us what the current situation is? 10 MS. MORRIS: Good morning. At this 11 time the agency has received 226 applications. That's 12 three more applications since my last report. 13 CHAIRMAN CLOWE: How many more? 14 MS. MORRIS: Three more. 15 CHAIRMAN CLOWE: Three more? 16 MS. MORRIS: Yes, sir. 17 CHAIRMAN CLOWE: Commissioner, the 18 executive director search committee has not met. They 19 are standing at the ready. Their chair, Mr. Edwards, 20 executive director of the Texas State Bar, has not 21 called a meeting to ask them to review any 22 applications, and we are continuing under the 23 leadership of Acting Executive Director Sadberry. And 24 that process is in progress at this time. 25 Are you satisfied with that? 0045 1 COMMISSIONER COX: Yes, sir. 2 CHAIRMAN CLOWE: Any comments or 3 directions? 4 COMMISSIONER COX: No. 5 CHAIRMAN CLOWE: Thank you, ma'am. 6 Commissioner, if you're agreeable at 7 this time, I would move that we go into executive 8 session. 9 At this time I move the Texas Lottery 10 Commission go into executive session to deliberate the 11 appointment, employment, evaluation and/or duties of 12 the Executive Director, Acting Executive Director 13 and/or Deputy Executive Director; to deliberate the 14 duties and evaluation of the Charitable Bingo 15 Operations Director and Internal Audit Director; to 16 deliberate the duties of the General Counsel pursuant 17 to Section 551.074 of the Texas Government Code and/or 18 to receive legal advice regarding pending or 19 contemplated litigation and/or to receive legal advice 20 pursuant to Section 551.071 (1) (A) or (B) of the 21 Texas Government Code and/or to receive legal advice 22 to advice pursuant to Section 551.071 (2) of the Texas 23 Government Code, including but not limited to: 24 Gametech International, et al. vs. Greg Abbott, et 25 al.; Cynthia Suarez vs. Texas Lottery Commission; 0046 1 Shelton Charles vs. Texas Lottery Commission and Gary 2 Grief; Stephen Martin vs. Texas Lottery Commission; 3 employment law, personnel law, procurement and 4 contract law, evidentiary and procedural law, and 5 general government law. 6 Is there a second? 7 COMMISSIONER COX: Second. 8 CHAIRMAN CLOWE: All in favor, please 9 say aye. The vote is two-zero. 10 The Texas Lottery Commission will go 11 into executive session. The time is 9:55 a.m. Today 12 is April the 19th, 2006. 13 (Recess.) 14 CHAIRMAN CLOWE: The Texas Lottery 15 Commission is out of executive session. The time is 16 1:24 p.m. 17 Is there any action to be taken as a 18 result of executive session? 19 If not, let's move to Item 16 of the 20 agenda, "Report by the Acting Executive Director 21 and/or possible discussion and/or action on the 22 agency's operational status, and the FTE status." 23 Director Sadberry. 24 MR. SADBERRY: Commissioners, Anthony 25 Sadberry, for the record, acting executive director. 0047 1 I'd like to bring several matters to your attention. 2 First I will describe as a policies and procedures 3 manual, which sometimes may be referred to as the 4 agency handbook. 5 In recent months staff has been working 6 on a new personnel handbook. And I would like to 7 advise you of the status of that and to seek 8 concurrence in our understanding of the roles that you 9 play with regard to your function as policy setters 10 for the agency and the role that the staff and 11 executive play in terms of the implementation of 12 procedures pursuant to such policies. I speak of this 13 in the sense of the process that we are in in 14 developing this new document, the amended document, 15 and the approval and adopting process that is expected 16 to take place with regard to same. 17 I'd like to speak of the history of the 18 commissioners' involvement in this process since the 19 inception of this agency. Historically, the records 20 show that the commission has approved the personnel 21 policy manual. In that regard, on January 7, 1997, 22 Chapter 1 of the personnel policy manual was presented 23 to the commission for consideration, possible 24 discussion and/or action. The commission approved 25 Chapter 1. 0048 1 At that meeting there was not much 2 discussion regarding the commissioners' role at the 3 March 18, 1997, meeting. Many of the chapters of the 4 manual, including a revised Chapter 1, were presented 5 to the commission under an item that was 6 "Deliberation, possible discussion and/or action." 7 To give the commission flexibility in 8 terms of how the commission wanted to proceed on the 9 item, the commission discussed whether it was an item 10 to be presented for information or whether it was an 11 action item for the commission. 12 The commission did take action on the 13 item by approving the chapters presented. At the 14 October 6, 1997, meeting other chapters of the manual 15 were presented, and the commission also approved these 16 chapters. 17 Since then the only change to the 18 manual presented to the commission involved the 19 agency's policy regarding the use of law enforcement 20 tools, including the carrying and use of firearms by 21 agency employees. This particular matter was taken up 22 by the commission at its April 9, 1998, meeting. 23 It is my understanding that since this 24 time period staff has generally not sought commission 25 approval for subsequent changes. 0049 1 Currently one of my main concerns is to 2 establish procedures for airing and resolving 3 employment disputes and for handling employee 4 grievances. 5 In that context, staff has reviewed the 6 relevant policies of the Texas Department of 7 Transportation, the Texas Workforce Commission, and 8 the Texas Health and Human Services Commission. And 9 I've asked staff to review those policies as reference 10 materials for drafting lottery commission policies, as 11 we proceed in that work, which is ongoing presently, 12 and we expect to have a product that results. 13 I want to comment that, as you know, 14 I've had the opportunity of meeting with you 15 individually and briefing you outside the context of a 16 commission meeting regarding these matters. And we 17 well understand and fully embrace the respective roles 18 that, we understand, are served by you, as 19 commissioners, in my capacity as acting executive 20 director and the staff with which I work. And that is 21 that from an overall oversight and governance 22 capacity, you, as commissioners, set out policies of 23 this agency by which we are governed in an overall 24 sense. And as staff from my office and the staff with 25 which I work, it is our duty and authority to 0050 1 implement the procedures that stem from and are a 2 function of those policies which are set. 3 It is our anticipation that this 4 relationship continues with, of course, whatever 5 additional oversight or direction or guidance you 6 might wish to provide to us and with whatever direct 7 involvement you might wish to have in this process, 8 given the history as I've laid it out in this report. 9 What we would like to ask is that you 10 indicate the role that you think is appropriate, from 11 the commissioner level, regarding the adoption of a 12 policy and procedures handbook, thereby establishing 13 for this agency a compilation of our policies and an 14 indication of our procedures that carry out those 15 policies. 16 You may wish that staff present to you, 17 on a periodic basis, the development of the stages of 18 that work product. You may wish that the role of the 19 executive director be to establish the policies for 20 the internal operation of the agency pursuant to your 21 establishing overall policies of the agency. You may 22 want to determine what you think within the manual is 23 agency policy and what you decide is more day-to-day 24 operation. 25 We are interested in your thoughts in 0051 1 that regard, and I'd be happy to answer any questions 2 that you may have regarding same. 3 COMMISSIONER COX: That's quite a 4 mouthful, Sadberry. I think that the idea of the 5 board approving a personnel manual is an applaudable 6 idea. From the report I heard from you, it maybe has 7 not proved to be a practical idea. Since I've been on 8 this board, we've not heard any amendments. I think I 9 heard you say that the four years before that no one 10 heard any amendments either. 11 MR. SADBERRY: That's correct. 12 COMMISSIONER COX: Clearly, there have 13 been changes. Maybe they haven't been written down, 14 but there have been changes in the way things 15 happened. 16 MR. SADBERRY: That's true. 17 COMMISSIONER COX: So it seems to me, 18 given that, that the appropriate role -- and not just 19 given that, but based on my understanding of the job 20 Chairman Clowe and I have, the better role for us 21 would be to define for you, if we could, what the 22 highest level we think should be the personnel 23 policies for the agency. And then I'm trying to get 24 that down to a piece of paper that we would call, 25 then, a procedural policy handbook. 0052 1 Typically, that would start off with a 2 statement of policy. Unless we were able to say -- I 3 guess we could take two roles here. We could say, 4 "One, the overall policy is this." And then you 5 interpret that policy to an operational statement, 6 which might be called "internal policy," just for a 7 term right now, as opposed to "overall policy," what 8 that is, and then, "Here's the procedure." 9 As I sit here right now, I think that 10 something you told me the first day you walked in the 11 door might be sufficient for what I think the policy 12 should be, at least as a starting point, and that is 13 that it comply with all the laws but that it be fair. 14 I don't know if it can be that simple or whether it 15 should be that simple. But that's where I want, at 16 the end of the day, from my standpoint, to see that 17 we're operable, that we're operating within the law, 18 and higher than that, we're operating with fairness. 19 Mr. Chairman, I don't know if that was 20 anything but confusing. 21 CHAIRMAN CLOWE: I understood you 22 perfectly. I agreed with what you said. I think what 23 you said was that your view is that we should have 24 policy oversight, and I certainly agree with that, and 25 that Director Sadberry should implement procedures, 0053 1 based on that policy oversight, that carry forward and 2 fulfill our direction. 3 We are interested, we are involved, and 4 it's important to us. And I might add by way of 5 further direction that I think the culture is 6 something that both Commissioner Cox and I are 7 interested in very deeply. And our direction to you 8 is to establish a culture of openness, of honesty, of 9 involvement and support so that we have employees in 10 this agency that are treated with dignity and respect, 11 clearly understand their role, their performance 12 goals, and are assisted in every way to achieve 13 outstanding performance. 14 And I agree with Commissioner Cox in 15 that I don't think we're going to be involved in the 16 business of approving, chapter by chapter, a manual. 17 But we do want to be briefed by you, as you have, and 18 kept current on activities. And our involvement 19 indicates our support. 20 MR. SADBERRY: Thank you, sir. 21 COMMISSIONER COX: One more thing that 22 I would add. After this subject was indicated, I've 23 looked at our board manuals. Everything's there that 24 this board has been shown recently. At the top of 25 that list was integrity and responsibility. And I 0054 1 think that if we have guidance that would go into what 2 is -- what are we going to do here, that would be 3 right there along with legal. 4 I would add to Chairman Clowe's list 5 one of my favorites, which is that performance and 6 compensation should be as directly linked as 7 possible. I believe that is probably a subcategory 8 within legal affairs, and yet I think it's as 9 important as some of the specifics that the chairman 10 mentioned. 11 So if we're going to look at just the 12 top level, I think it's a few words. If we're going 13 to look at a few guiding principles, I think I would 14 ask that you bring to us what you think are the areas 15 that you believe you want guidance in, more 16 specifically, and we will look at those and go from 17 there. 18 MR. SADBERRY: Commissioners, that's 19 very helpful. I appreciate that, and, rest assured, 20 it will take place, and we'll keep you apprised. 21 Let me advise you on a few additional 22 matters, commissioners. I would like to speak of the 23 LaFleur's 11th Annual Lottery Symposium that took 24 place in Washington, D.C., April 9th through 12th of 25 this year. The attendees at the symposium were 0055 1 Dr. David Sizemore, research coordinator; Bobby Heath, 2 director of media relations; and myself. It was two 3 days of presentations regarding lottery-related topics 4 from on-line games, marketing, advertising, and other 5 topics related to the day-to-day activities and 6 challenges facing lotteries today. 7 One informative presentation that stood 8 out in my mind was made by Ms. Bonnie Botts, vice 9 president of marketing and public relations of the 10 Louisiana Lottery Corps. She gave a Power Point 11 presentation illustrating what tremendous challenges 12 were experienced during and after Hurricanes Katrina 13 and Rita. 14 Examples of problems and challenges 15 that were encountered include lost power, displaced 16 employees and not knowing their whereabouts, loss of 17 communication with retailers and employees, inability 18 to distribute tickets and validate prizes, theft of 19 lottery tickets by looters, and budget reduction to 20 meet the needs of State relief efforts, which 21 highlights the challenges that we all potentially face 22 in an ongoing day-to-day operation of a lottery as it 23 may be beyond our control, such as we'll be hearing, 24 in some respects, this morning in presentations. 25 In addition to that, I had the 0056 1 opportunity to meet and have brief conversations with 2 other lottery directors, which was a good exchange of 3 ideas and challenges and concerns. That included 4 Jeannette Michael of Washington, D.C. lottery; Tony 5 Cooper of the South Carolina lottery; Buddy Ragoow, 6 director of the Maryland lottery; and Nancy Palumbo, 7 director of New York lottery. 8 As I indicated to you this morning, 9 there were at least two representatives, if not more, 10 from the Ipsos-Reid organization. I did have the 11 opportunity to discuss, in the sense of my 12 understanding of your interests and concerns that's 13 related to this morning's presentation on the survey 14 regarding the Texas lottery. And we discussed 15 specifically the plan meeting in Texas on May 19th. 16 And I indicated my concerns and interests at that 17 meeting to have a substantial, substantive content 18 that would be helpful to us in addressing many of the 19 things that we discussed this morning and moving 20 forward to focusing on how we could best use this 21 resource and how we can participate in it in a manner 22 that maximizes potential for our overall achievement 23 of these goals and these results. 24 To additionally inform you of what I'm 25 doing in my day-to-day activities, I continue in the 0057 1 walk-arounds, in turn with the agency, meet members of 2 the staff. I am continuing to do these walk-arounds 3 to visit different areas of the agency on a continuing 4 basis. I believe that this will assist me in my 5 ability to place names with faces and give staff a 6 better chance to get to know me. 7 I would like to tell you about the 8 claims center staff, who was at the headquarters 9 recently for training. The staff members from the 10 claims center were in the Austin headquarters for 11 training last week. I met with them on Wednesday 12 evening over dinner and again Thursday in my office. 13 I expressed to each of those attendees my appreciation 14 for all that they do for the agency in their duties 15 and responsibilities. I also discussed with them my 16 work philosophy for the agency and how important it is 17 to approach our mission and goals here at the agency 18 as a team. 19 We're continuing to make ourselves 20 available, as requested, inviting the members of our 21 State leadership and the legislature. To advise you 22 of some of the recent activities we've done in that 23 regard, this last Thursday at the capitol I spoke to 24 Leadership Pearland at the invitation of Senator Mike 25 Jackson's office. Then several members of the staff, 0058 1 including myself, had a briefing to some of the 2 leadership officers of the State to provide them with 3 an update on the GTECH Lottomatica transaction and the 4 status of the various SAO audits. 5 Yesterday I spoke to Leadership 6 Mainland, which are representatives from businesses in 7 Texas City and Lamar, at the invitation, again, from 8 Senator Mike Jackson's office. We will continue to do 9 so and will continue to keep you advised as these 10 opportunities arise. 11 I will be attending the next Mega 12 Millions meeting of lottery directors, which is 13 scheduled for May 4th in Boston, Massachusetts. This 14 meeting will be held at the Massachusetts State 15 Lottery Headquarters. 16 CHAIRMAN CLOWE: Tell them we want an 17 adjoining power ball. 18 MR. SADBERRY: I can tell you that that 19 message was carried forward at the meeting that 20 occurred in Washington, D.C., and I don't expect it to 21 change. I'm sure they will inquire me on that, and I 22 will represent myself accordingly. 23 CHAIRMAN CLOWE: Thank you. 24 MR. SADBERRY: Thank you, 25 commissioners. 0059 1 CHAIRMAN CLOWE: Director Sadberry, if 2 we stay on our schedule of two meetings a month, our 3 next meeting will be May 3rd. Is that correct? 4 MR. SADBERRY: Yes, sir. 5 CHAIRMAN CLOWE: Commissioner Cox noted 6 that we are taking up so many valuable people's time 7 in this executive session, and everyone is courteously 8 waiting for us to come out. I wonder if we might not 9 adopt a procedure where the commissioners, when 10 they're in the last 20 or 30 minutes of executive 11 session, could notify somebody, and everybody could be 12 working and doing things that they need to do and not 13 sitting here waiting for us to come out of that 14 session, and use this time as a more productive time. 15 MR. SADBERRY: We'll take care of that. 16 CHAIRMAN CLOWE: Could we try something 17 like that and see if it works? 18 MR. SADBERRY: Certainly. 19 CHAIRMAN CLOWE: I think it would be 20 beneficial to everybody. Thank you. 21 Next we'll take up Item 17, "Report by 22 the Charitable Bingo Operations Director and possible 23 discussion and/or action on the Charitable Bingo 24 Operations Division's activities." 25 Mr. Atkins. 0060 1 MR. ATKINS: Thank you, commissioners. 2 Just to update some of the information that you have 3 in your notebook, a recommendation has been made for 4 the vacant audit position in our Dallas regional 5 office, and that will be submitted to the HR 6 department. 7 We, so far, have received 12 8 applications for the vacant Accounts Examiner II 9 position in the accounting services section. 10 We have changed, somewhat, the format 11 that we report the use of the Bingo Services Center to 12 you. That's contained on there. It not only shows 13 you the number of active external users but also the 14 number of licensed organizations associated with those 15 individuals. 16 The next BAC meeting is tentatively 17 scheduled for May 10th. And also, quarterly reports 18 for the first quarter of 2006 are due next week on 19 April 25th. And as you know, commissioners, we have 20 made a process available to our licensees whereby they 21 can submit electronically their quarterly report forms 22 to us. As of this morning, we have received, so far, 23 16 quarterly reports submitted electronically. Of 24 those 16 we have received 12 of the payment coupons 25 with a check for the prize fees. Those have been 0061 1 loaded into our system and are working. 2 Finally, the last thing I wanted to 3 bring to your attention is the upcoming annual NAGRA 4 conference scheduled for June 11th through the 14th. 5 As you know, I will be ending my term as immediate 6 past president of NAGRA. Phil Sanderson serves as 7 cochair of the charitable gaming committee for NAGRA. 8 Currently, both he and I are scheduled to attend that 9 conference. 10 That's all I had in addition to the 11 other information I've included with my report. 12 CHAIRMAN CLOWE: Billy, where is that 13 meeting? 14 MR. ATKINS: In Scottsdale. 15 CHAIRMAN CLOWE: Not a bad place. 16 MR. ATKINS: I don't know in June. In 17 June, it may be a little warm. 18 CHAIRMAN CLOWE: It's dry heat. You'll 19 have a good time. 20 Is there anyone wishing to make public 21 comment to the commission? 22 Commissioner Cox, do you have 23 anything? 24 COMMISSIONER COX: No, sir. 25 CHAIRMAN CLOWE: Thank you, sir. 0062 1 We are adjourned, thank you-all very 2 much, at 1:46 p.m. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0063 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 ) 5 COUNTY OF TRAVIS ) 6 7 I, KELLY E. FISHER, Certified Shorthand 8 Reporter for the State of Texas, do hereby certify 9 that the above-captioned matter came on for hearing 10 before the TEXAS LOTTERY COMMISSION as hereinafter set 11 out, that I did, in shorthand, report said 12 proceedings, and that the above and foregoing 13 typewritten pages contain a full, true, and correct 14 computer-aided transcription of my shorthand notes 15 taken on said occasion. 16 Witness my hand on this the 26th day of 17 April 2006. 18 19 Kelly E. Fisher, Texas CSR No. 2834 20 Expiration Date: 12-31-07 WRIGHT WATSON STEN-TEL 21 Firm Registration No. 225 1801 N. Lamar, Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 JOB NO. 060419KEF 24 25