0001 1 2 3 4 5 6 7 8 9 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 10 TEXAS LOTTERY COMMISSION HEARING 11 MAY 27, 3004 12 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION meeting was held on the 27th day of May, 2004, 19 from 8:30 a.m. to 2:38 p.m., before Steffanie L. Decker, 20 CSR in and for the State of Texas, reported by machine 21 shorthand, at the Offices of the Texas Lottery Commission, 22 611 East Sixth Street, Austin, Texas, whereupon the 23 following proceedings were had: 24 25 0002 1 APPEARANCES 2 Chairman: 3 Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. Rolando Olvera 6 Mr. James Cox, Jr. 7 General Counsel: 8 Mr. Ridgely Bennett 9 Executive Director: 10 Mr. Reagan E. Greer 11 Charitable Bingo Operations Director: 12 Mr. Billy Atkins 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 Appearances....................................... 2 3 AGENDA ITEMS 4 Item Number 1..................................... 4 Item Number 2..................................... 4 5 Item Number 3..................................... 13 Item Number 4..................................... 14 6 Item Number 5..................................... 16 Item Number 6..................................... 18 7 Item Number 7..................................... 27 Item Number 8..................................... 29 8 Item Number 9..................................... 32 Item Number 10.................................... 34 9 Item Number 11.................................... 37 Item Number 12.................................... 40 10 Item Number 13.................................... 44 Item Number 14.................................... 48 11 Item Number 15.................................... 49 Item Number 16.................................... 63 12 Item Number 17.................................... 70 Item Number 18.................................... 72 13 Item Number 19.................................... 88 Item Number 20.................................... 92 14 Item Number 21.................................... 93 Item Number 22....................................64,112 15 Item Number 23.................................... 118 Item Number 24.................................... 144 16 Item Number 25.................................... 145 Item Number 26.................................... 124 17 Item Number 27.................................... 127 Item Number 28.................................... 139 18 Item Number 29.................................... 146 Item Number 30.................................... 146 19 20 Reporter's Certificate............................ 147 21 22 23 24 25 0004 1 MAY 27, 2004 2 3 MR. CLOWE: Good morning. It is 8:30 a.m. 4 I'd like to call this meeting to order. My name is 5 Tom Clowe. We'll begin the meeting with item two on 6 the agenda, consideration of and possible discussion 7 and/or action on nominations and/or appointments to 8 the Bingo Advisory Committee. Mr. Atkins? 9 MR. ATKINS: Thank you, Mr. Chairman. 10 Commissioners, as you know Marilyn Matthews resigned 11 from her position on the Bingo Advisory Committee. 12 She filled the slot as conductor lessor. We posted 13 that vacancy both on our web site and through 14 notification in the Bingo bulletin, and we received 15 three nominations. The subcommittee of the Bingo 16 Advisory Committee considered those nominations and 17 made recommendations, which are contained in your 18 notebook. Commissioner Clowe, both you and 19 Commissioner Cox expressed a desire to interview the 20 primary candidate and discuss with him his interest 21 in serving on the BAC, as well as your individual 22 expectations at the separate meetings that we were 23 going to schedule for both of you. We had difficulty 24 scheduling those meetings. And on May 25th, I 25 received an Email from the nominee, Denver Blansett 0005 1 (Phonetic), that professional commitments were going 2 to prohibit him from serving on the Bingo Advisory 3 Committee. I forwarded a copy of that Email to the 4 BAC nominating committee, as well as Suzanne Taylor, 5 the vice-chair of the BAC. Both Suzanne and Patricia 6 Greenfield, who is the chair of the BAC nominating 7 committee, recommended that the Commission might 8 consider interviewing the second candidate, Kimberly 9 Rogers. And if the Commission doesn't want to do 10 that, then we would need to start seeking out new 11 nominations for you to consider. 12 MR. CLOWE: Commissioners, what's your 13 pleasure on this? The nominating committee, as I 14 recall it, considered three individuals and made 15 their recommendation in rank order. And we pursued 16 the number one ranked candidate. So now -- I assume 17 that all three candidates are qualified and are 18 willing to serve, although we found that was not the 19 case with the initial contact with the first 20 candidate. We can take the nominating committee 21 recommendation and visit with the number two ranked 22 candidate or, Billy, I think you've indicated to me 23 that you had broadened the search to the extent of 24 asking staff if they were aware of someone that might 25 be added to the list that the nominating committee 0006 1 might consider. 2 MR. ATKINS: That's correct, Mr. Chairman. 3 I was going to discuss this under -- a little later 4 on, but there's also an additional vacancy on the 5 Advisory Committee now, the position that Virginia 6 Bracket held. As you know, she resigned after the 7 last meeting. Again, we have put notifications in 8 the Bingo Bulletin, as well as on the web site. But 9 since our experience this last time was so low in the 10 amount of nominations that we got, I've asked the 11 staff, the people who deal directly with the 12 licensees, to take that under consideration and 13 submit any names of individuals that they think might 14 be interested in serving on the BAC. 15 MR. CLOWE: But your question to us at this 16 point in time is do we want to consider the number 17 two ranked nominee. And Commissioner Cox and I have 18 indicated we'd like to meet that individual. 19 I don't know about Commissioner Olvera, whether 20 you've had a chance to visit with Billy about that or 21 not. 22 Where would you be on this, Commissioner Cox? 23 MR. COX: I think let's take a look at this 24 person. 25 MR. CLOWE: Good. 0007 1 Are you all right with that? 2 MR. OLVERA: That's fine. And I don't 3 think it's mutually exclusive. Obviously, you've 4 already asked for recommendations from staff and we 5 have received those; is that right? 6 MR. ATKINS: Sure, we could. We would -- 7 the process in the past has been as those 8 recommendations come forward to have the BAC review 9 them. They conduct their own interview of the 10 candidate before they pass those recommendations 11 along to the Commission. 12 MR. COX: So Billy, at this point, this 13 person has been interviewed by members of the BAC, 14 but not by members of the staff? 15 MR. ATKINS: That's correct. 16 MR. COX: Would it be appropriate for the 17 staff to talk to these folks before the Chairman and 18 I did? 19 MR. ATKINS: We could. Generally the staff 20 has been present when the Commissioners -- 21 MR. COX: So you do have those? 22 MR. ATKINS: Yes, sir. 23 MR. COX: Okay. 24 MR. ATKINS: Sure. 25 MR. CLOWE: I'd say based on that, if you 0008 1 would verify that -- what's the lady's name again, 2 please, Billy? 3 MR. ATKINS: Kimberly Rogers. And I've 4 been informed by Suzanne Taylor that Ms. Rogers has 5 stayed in contact with her expressing her interest in 6 serving. 7 MR. CLOWE: Okay. 8 MR. ATKINS: And Ms. Rogers lives in San 9 Antonio, so I think it would be much easier for her 10 to serve and to come up to meet with both of you. 11 MR. CLOWE: And you've had at least two 12 Commissioners, then, that would like to meet her and 13 have the opportunity to get to know her before we 14 move ahead. 15 MR. ATKINS: And we can for -- Commissioner 16 Olvera, if you'd like, we can try and schedule a 17 telephone interview. 18 MR. OLVERA: I'd prefer a telephone in 19 conference. I know it's difficult between 20 Brownsville and Austin. 21 MR. ATKINS: I understand. 22 MR. BENNETT: I'd like to interject and say 23 that you will not be meeting with the candidate 24 together as a body unless you notice that up as an 25 open meeting. 0009 1 MR. CLOWE: Thank you for that very much. 2 I was afraid we weren't going to have that influence. 3 MR. COX: Ms. Kiplin would be proud of you. 4 MR. CLOWE: That's what I wanted to say. 5 MR. ATKINS: Mr. Chairman? 6 MR. CLOWE: Yes. 7 MR. ATKINS: One last thing, I did want to 8 let the Commission know that we have received 9 notification from Patricia Greenfield, who is the 10 licensee that serves in the SSP position, the system 11 service provider position, that her license has 12 expired and it is not her intent to renew that, so we 13 will need to address that at a future meeting. And I 14 have specifically been seeking advice from the Legal 15 Division on the options available to the Commission, 16 because there are no other licensees licensed in the 17 SSP position. So that's an item that we will be 18 bringing to you at a future Commission meeting. 19 MR. COX: Billy, how many vacancies do we 20 have either actual or de facto? 21 MR. ATKINS: We have at this time three. 22 MR. COX: And that's people that actually 23 don't hold a position or does that count people that 24 have a name in there but don't come? 25 MR. ATKINS: Well, I misspoke. We have two 0010 1 -- it's my understanding that Patricia Greenfield 2 will continue to serve until she is removed by the 3 Commission. 4 MR. COX: But we have at least one member 5 who maybe came to one meeting and hasn't showed up 6 again? 7 MR. ATKINS: We had one meeting [sic] that 8 came to one or two meetings, missed several meetings 9 but was -- at the last meeting, all the members were 10 present. 11 MR. COX: Oh, okay. Good. So we have, 12 then, two vacancies and they're -- they're -- just 13 nobody in that slot? 14 MR. ATKINS: That's correct. And we have 15 one potential vacancy. 16 MR. COX: Now, I know that we have 17 categories of members, and then we have some public 18 members. Do the public members have to be not 19 associated with the Bingo industry? 20 MR. ATKINS: That's correct. 21 MR. COX: Do we have any at large? And I'm 22 thinking that perhaps there might be a category, such 23 as operator, where there might be four or five 24 excellent people that could serve, but there are only 25 two slots and they can't get on the committee where 0011 1 we take weaker people or nobody at all in other 2 categories because they're harder to fill. Can we 3 establish any flexibility there or do we just not 4 have any? 5 MR. ATKINS: Currently, under the Bingo 6 Advisory Committee Rule, I believe the breakdown of 7 the committee is as follows. I think there is one 8 SSP representative, one general public 9 representative--I'm hoping Mr. Bennett is pulling out 10 his copy of the rule--three charity representatives, 11 two -- one conductor lessor representative, one 12 commercial lessor representative, and one 13 manufacturer distributor representative. 14 MR. COX: Okay. 15 MR. ATKINS: So those are the categories 16 that are represented, and I'm pretty close with the 17 breakdown per position. And those are, Commissioner 18 Cox, contained in the rule, so it's not -- 19 MR. COX: Is that by our rule? 20 MR. ATKINS: Yes, sir. So if it's the 21 Commission's rule to change those allocations -- 22 MR. COX: Well, let me just give you 23 something to think about. I think I heard you say 24 three charity representatives, one -- 25 MR. ATKINS: Could I see that? 0012 1 (Mr. Atkins reviews document.) 2 MR. ATKINS: That's correct, three charity 3 representatives. 4 MR. COX: And one -- 5 MR. ATKINS: One who is a conductor lessor. 6 MR. COX: And one who is? 7 MR. ATKINS: A commercial lessor. 8 MR. COX: And one who is? 9 MR. ATKINS: A general public member. 10 MR. COX: And one who is a manufacturer? 11 MR. ATKINS: And one that is an SSP. 12 MR. COX: Okay. What if we were to say 13 something like seven members, at least one of which 14 must be from each of these categories? And that 15 would leave us a couple of floaters that we might be 16 able to assign to the most available capable person 17 without regard to category and maybe make this 18 process a little smoother. 19 MR. ATKINS: I think that would be 20 perfectly within the Commission's right. I, of 21 course, would look to legal to -- 22 MR. COX: Well, see if you all think it's a 23 good idea. 24 MR. CLOWE: Anything under this item 25 further, Billy? 0013 1 MR. ATKINS: No, sir. 2 MR. CLOWE: Next item, three, report by the 3 Bingo Advisory Committee Chairman, possible 4 discussion and/or action regarding the Bingo Advisory 5 Committee's activities, including the April 29th, 6 2004 committee meeting. 7 I don't see Ms. Taylor here. 8 MR. ATKINS: She is not, Mr. Chairman. I 9 received notification late last evening that she 10 would not be able to attend. You do have, in your 11 notebook, her report from their last meeting, as well 12 as she included a copy of the Advisory Committee's 13 recommendations regarding the Sunset Advisory 14 Committee staff report. And the only other thing 15 that I was going to note for you, as you know, the 16 April 29th meeting was the last meeting for Virginia 17 Bracket who had been serving as the Chair. It had 18 been the staff's intent to recognize her during the 19 meeting for her service on the Commission. She 20 didn't want any type of public recognition, but I do 21 want you to know that we did provide her with a 22 certificate acknowledging her years of service that 23 was signed by both the Chair and myself. 24 MR. CLOWE: And you and I were able to 25 congratulate her and express our appreciation, and 0014 1 she was appreciative of that. 2 MR. ATKINS: Yes, sir. 3 MR. CLOWE: And so now what is the plan for 4 the Chair's position? Refresh our memory on -- 5 doesn't the BAC select that individual? 6 MR. ATKINS: That's correct. According to 7 general law, as well as the rule regarding the Bingo 8 Advisory Committee, that is a responsibility of the 9 BAC to select their own chair from their membership. 10 In the absence of the chair, of course, the 11 vice-chair serves in that position. 12 MR. CLOWE: When is the next meeting? 13 MR. ATKINS: It is tentatively scheduled 14 for July 14th. 15 MR. CLOWE: So we should anticipate that 16 action will be taken on that -- it will be on the 17 agenda, at least, of that meeting? 18 MR. ATKINS: Yes, sir. 19 MR. CLOWE: Commissioners, any questions of 20 Billy on this area? 21 MR. COX: No, sir. 22 MR. CLOWE: Let's move on, then, to item 23 number four, report and possible discussion on 24 calendar year 2004, first quarter Bingo financial 25 information and statistics. 0015 1 Mr. Atkins? 2 MR. ATKINS: Commissioners, this is our 3 regular quarterly report. We have ended the first 4 quarter of 2004. There are some new line items in 5 this report that we have added. We added a line for 6 other income, a line for total expenses, and a line 7 for net revenue. Commissioners, we are continuing to 8 work with Commissioner Cox on redefining and refining 9 this report to make it as meaningful to you as we 10 can. Again, the one thing I would pull your 11 attention to -- call your attention to is instant 12 Bingo sales, which continue to increase for the first 13 quarter of 2004. They were $41.3 million in sales, a 14 $11-and-a-half million increase or almost 38, 15 39 percent increase over the same quarter in 2003. 16 MR. CLOWE: Any questions for Billy on his 17 report? 18 MR. COX: Billy, it looks like the margin, 19 this ticket sales less the prizes is lower for the 20 instant than it is for the regular game. 21 MR. ATKINS: Generally, the prize payout 22 for instants is higher than for regular -- 23 MR. COX: That's potential obviously 24 because we -- I assume that's controllable? 25 MR. ATKINS: It is controllable. 0016 1 MR. COX: So the instant Bingo does not pay 2 back at exactly the same odds that Bingo does. It 3 pays back at higher odds. 4 MR. ATKINS: That's correct. And we have 5 actually found that the new type of pull tabs, the 6 event tickets that the Commission approved a year or 7 so ago has an even higher payout percentage than the 8 regular pull tabs. 9 MR. COX: Do you think that's part of their 10 appeal? 11 MR. ATKINS: I do. Yes, sir. 12 MR. COX: Anything you can do with the 13 regular game to spice it up a little bit? 14 MR. ATKINS: I don't know that we have 15 thought about that, but we will look into it. 16 MR. CLOWE: Thank you, Billy. 17 Next we'll go to item five, consideration of 18 possible discussion and/or action including adoption 19 on new rule 16 TAC 402.535 relating to debit card 20 transactions. 21 Mr. Oldham, good morning. 22 MR. OLDHAM: Good morning, Commissioners. 23 For the record, my name is Kevin Oldham, Assistant 24 General Counsel. For your consideration this morning 25 is the debit card rule. Commissioners, this rule, if 0017 1 you remember, was considered at the April 12th 2 Commission meeting. At that time the Commission 3 voted to publish the rule for comment in the Texas 4 Register. The rule was actually published on April 5 23rd, and the comment period lasted 30 days. And 6 that ended on May 24th. The staff did not receive 7 any comment for this rule. The purpose of the rule 8 is to increase understanding and better record 9 keeping among licensees who accept debit card 10 transactions in connection with the conduct of Bingo. 11 And the rule defines what a debit card transaction is 12 and identifies the records relating to these 13 transactions that the organizations must maintain in 14 order to insure compliance with the Bingo Enabling 15 Act, specifically that the deposits of these 16 transactions -- funds from these transactions have to 17 be deposited in the Bingo bank account no later than 18 72 hours after the transaction occurred. 19 With that, I'll be happy to answer any questions 20 and defer to Mr. Atkins. 21 MR. CLOWE: Any comments, Billy? 22 MR. ATKINS: Commissioners, staff would 23 recommend that the Commission vote to adopt the new 24 Administrative Rule 402.535 Debit Cards, as published 25 in the Texas Register without changes. 0018 1 MR. COX: So moved. 2 MR. OLVERA: Second. 3 MR. CLOWE: All in favor, please say aye. 4 MR. COX: Aye. 5 MR. CLOWE: Aye. 6 MR. OLVERA: Aye. 7 MR. CLOWE: Opposed, no? The vote is three 8 zero in favor. 9 MR. BENNETT: Commissioners, I have an 10 order for your signatures. 11 MR. CLOWE: Next we'll consider item number 12 six, consideration of possible discussion and/or 13 action including adoption on new rule 16 TAC 402.602 14 relating to unit accounting. 15 MR. OLDHAM: Thank you, Mr. Chairman. As 16 you may recall, the unit accounting rule was also 17 considered by the Commission at the April 12th 18 meeting. And at that time the Commission voted to 19 publish the rule for public comment for a period of 20 30 days. The rule was actually published in the 21 Texas Register on April 23rd and the comment period 22 ended on May 24th. The staff did receive comment on 23 this rule. We received -- specifically received 24 comment from Representative Kino Flores, Senator Mike 25 Jackson and Senator Eddie Lucio, Jr. In addition, we 0019 1 received comment from members of the industry 2 represented by Stephen Fenoglio, Steve Bresnen and 3 also Mr. David Heinlein. The summary of the two 4 comments -- or the comments basically revolved around 5 two issues. The first which was articulated by the 6 members of the Legislature was that the intent of the 7 legislation was to allow organizations that choose to 8 operate as a unit as opposed to individually to have 9 one Bingo bank account, that being the unit Bingo 10 bank account as opposed to each individual 11 organization having their own Bingo bank account. 12 And the rule as proposed would have required each 13 organization, whether or not they were a member of a 14 unit, to maintain that separate Bingo bank account. 15 The members indicated that it would -- allowing one 16 unit Bingo bank account would streamline the process, 17 reduce costs and help the Commission with the 18 auditing process. There was one issue that the staff 19 took into great consideration with the statute and 20 the legal argument that there was -- there's one 21 provision in the statute, Section 2001.451 of the 22 Bingo Enabling Act, which generally requires every 23 organization that conducts Bingo to maintain a Bingo 24 bank account. But based on the staff's legal 25 analysis, and based on the comment received by the 0020 1 Legislature indicating their intent and other members 2 of the industry, it was determined that it was well 3 within the statutory framework to allow these 4 organizations to maintain one Bingo bank account if 5 they're operating as a unit. The other comment -- 6 and the rule as -- with the recent justification does 7 provide explanation of that. And the staff did take 8 up that recommendation by the members of the 9 Legislature and the industry, and that change is 10 reflected in the recent justification in the rule as 11 it's laid out before you today. 12 The other comment was presented specifically by 13 Mr. David Heinlein. And his comment was that he -- 14 the rule as proposed requires each organization, 15 whether or not they're a member of a unit, to 16 continue to file a quarterly report on a form 17 prescribed by the Commission. Currently that form is 18 page length -- I'll defer to Phil, but I believe it's 19 a full page form. And the concern was that if an 20 organization is operating as a unit and the unit is 21 reporting prize fees, expenses and that sort of thing 22 that the organization would not have to duplicate 23 those efforts. The Commission -- I mean, the staff 24 does not recommend making that change to the rule. 25 And the purpose being, the staff is looking at 0021 1 creating a short form for the organizations to fill 2 out if they are a member of the unit, which would 3 basically encompass the organization's use of 4 proceeds. That's something that the Commission still 5 has to regulate, and it's not really controlled by 6 the unit. It was more controlled by the 7 organization. So staff would recommend that the rule 8 remain the same as proposed on that issue where the 9 individual organizations would continue to have to 10 file a quarterly report, albeit probably on a much 11 shorter and easy to fill out form, revolving around 12 the charitable use of proceeds so that we can 13 continue to monitor that. 14 With that, I'll defer to Billy and I'll be happy 15 to answer any questions regarding this rule. 16 MR. ATKINS: Mr. Chairman, the staff would 17 recommend the Commission vote to adopt the new 18 Administrative Rule 402.602 Unit Accounting as 19 published in the Texas Register with changes 20 specifically to subsections (g)(1) and (g)(3) as 21 explained by Mr. Oldham. 22 MR. CLOWE: Question? 23 MR. COX: Question. 24 Billy, originally this was written such that 25 each charity had to have both a Bingo account and a 0022 1 general account. And now it's been changed so that, 2 as I understand it, only a general account is 3 required. Was the requirement for a Bingo -- 4 separate Bingo account for each organization 5 something that you felt was substantively important 6 from an operational and regulatory standpoint or was 7 it in there because we thought it was necessary to 8 comply with the existing law? 9 MR. ATKINS: I think it was both, 10 Commissioner Cox. And let me clarify one thing, the 11 rule as it is now would require the organization not 12 just to have a general account but also to have a 13 unit account to which their funds are going to be 14 donated in. Our concern -- 15 MR. COX: And the unit would have an 16 account -- a unit account, but not each charity? 17 MR. ATKINS: That's correct. 18 MR. COX: Right. 19 MR. ATKINS: Each charity would have their 20 general account. 21 MR. COX: Yes. 22 MR. ATKINS: Our concern is the ability to 23 trace the money wherever it goes. And it, you know, 24 I think became very clear during the discussions with 25 the industry the importance of that and the impact of 0023 1 not having a requirement that organizations in the 2 unit have a Bingo bank account. The testimony that 3 we received, which Mr. Oldham has captured, I believe 4 it's on page four of his preamble, is that 5 organizations understand that if they don't have a 6 Bingo bank account, then the Commission will have the 7 authority to go to that general account to trace 8 those funds as need be. 9 MR. COX: And in effect you can define it 10 at the bank time? 11 MR. ATKINS: Yes, sir. 12 MR. COX: Billy, at one time wasn't there 13 an issue about whether if this money was commingled 14 in this way there might be some tax implications? 15 MR. ATKINS: There were. And I defer to 16 Mr. Oldham and Mr. Sanderson on that. I don't think, 17 Commissioner Cox, that has been finally resolved yet 18 through the Internal Revenue Service. 19 MR. OLDHAM: And Commissioner, I know that 20 Mr. Fenoglio has indicated in past Commission 21 meetings that some organizations that he is 22 representing have sought an opinion from the Internal 23 Revenue Service on unit accounting and how it affects 24 their tax exempt status. The Commission is not -- 25 the staff has not engaged and participated in any 0024 1 type of request for an opinion. I don't know -- he's 2 not here today. I know he had to be out of town, but 3 we can -- 4 MR. CLOWE: Is there anybody here in the 5 audience that might help with that? I see Mr. 6 Bresnen indicating he's going to come forward. 7 Mr. Bennett -- 8 MR. BENNETT: Commissioners, yes, if you 9 receive -- 10 MR. CLOWE: Give me a -- give me a chance. 11 MR. BENNETT: Yes, sir. 12 MR. CLOWE: You're doing a great job. Like 13 the good old days. Now, are we in the record and are 14 we now not taking comment -- 15 MR. BENNETT: We are not taking comment 16 if -- 17 MR. CLOWE: -- if we ask Mr. Bresnen to 18 answer Commissioner Cox's question? 19 MR. BENNETT: If Mr. Bresnen makes it clear 20 that his comments are not comments directed at the 21 rule that the staff would have to respond to, then we 22 would be safe. I would like to say that the rule is 23 permissive and not mandatory, and so the charities 24 could set it up any way that they'd like to do. If 25 they want to take a more conservative approach, they 0025 1 can still have their own bank account. And if they 2 would rather, they could also have the -- just the 3 unit accounts, and so it would be up to the 4 individual charities to decide how they'd want to set 5 that up. 6 MR. COX: So it's their choice if they 7 choose to do this. And if that causes some tax 8 situations, well, they're big boys. 9 MR. BENNETT: Exactly. 10 MR. CLOWE: And I think the Commission is 11 interested in this and would like to hear from Mr. 12 Bresnen if he had a comment, but Steve, you 13 understand where you are on this? 14 MR. BRESNEN: Yes, sir. My comments will 15 not be directed towards the rule, but to update you 16 on what we have done on tax implications. 17 Mr. Fenoglio, a CPA, and David Heinlein spent a 18 number of months perfecting both the organizational 19 structure and a request for a letter ruling from the 20 Internal Revenue Service. That was sent to the IRS 21 on April the 8th. They generally have no more than a 22 90-day turnaround--that's my understanding--to give 23 you a response on that. We think that will be back 24 sometime in the next 20 to 30 days from them. A lot 25 of effort was put into structuring that and using a 0026 1 -- using a model that we think will answer the issues 2 in a favorable manner. We are really hoping on it, 3 because a lot of work is now being done to educate 4 various locations on how they go about doing this. 5 And there's a lot of excitement about it. If that 6 ruling -- we have been sort of restraining people a 7 little bit, although there are a number of locations 8 where people are -- I think they're up and operating 9 now, and some that are going to go probably July 1st. 10 But if we get that favorable IRS treatment back, I 11 suspect this will take off like a rocket and be the 12 most important thing we've done in the last 20 years 13 in Bingo in terms of, you know, internal regulatory 14 structure. 15 MR. COX: You see two gates; we are one of 16 them and the IRS is another? 17 MR. BRESNEN: Yes, sir. We've got to jump 18 through that second one, but we've done everything we 19 could to maximize our opportunities on that. And I 20 think everybody out there is excited about it. 21 They're chomping at the bit. We have sort of 22 restrained them a little bit. We really appreciate 23 the staff's work on all this, as well. 24 MR. CLOWE: Thank you, Steve. 25 And Billy, you're comfortable that the 0027 1 Commission can audit these participants and can track 2 this money with the proposed rule as it is? 3 MR. ATKINS: Yes, sir. 4 MR. CLOWE: Okay. Is there a motion? 5 MR. OLVERA: So moved. 6 MR. CLOWE: I'm sorry. Was there any 7 further discussion? 8 MR. COX: No further discussion. 9 MR. CLOWE: I think a motion would be -- 10 MR. OLVERA: Motion. 11 MR. COX: Second. 12 MR. CLOWE: All in favor, please say aye. 13 MR. OLVERA: Aye. 14 MR. COX: Aye. 15 MR. CLOWE: Aye. Opposed, no? The vote is 16 three zero in favor. 17 MR. BENNETT: And I have an order for your 18 signatures, Commissioners. 19 MR. CLOWE: Next we'll go on to item number 20 seven, consideration of and possible discussion 21 and/or action including adoption on new Rule 16 TAC 22 402.601 Relating to Unit Manager. 23 MR. OLDHAM: Thank you, Mr. Chairman. The 24 Unit Manager Rule, which is before you today, was 25 voted on at the March 5th, 2004 meeting to be 0028 1 published in the Texas Register for public comment 2 for a period of 30 days. The rule was published on 3 the issue, which was generated on March 19, 2004, and 4 the comment ended on April 19th, 2004. The 5 Commission did not receive any comment on this 6 proposed rule. The purpose of the rule is to 7 identify the process by which a person may become a 8 unit manager, including the steps necessary to 9 properly notify the Commission, the bond amount of 10 security that must be posted and the annual license 11 fee. 12 I'll be happy to answer any questions you might 13 have and then defer to Mr. Atkins. 14 MR. CLOWE: Billy, do you have any comment? 15 MR. ATKINS: Commissioners, the staff would 16 recommend that the Commission vote to adopt the new 17 Administrative Rule 402.601 Unit Manager as published 18 in the Texas Register without changes. 19 MR. CLOWE: Questions? 20 MR. COX: No questions. 21 MR. CLOWE: Is there a motion? 22 MR. OLVERA: So moved. 23 MR. COX: Second. 24 MR. CLOWE: All in favor, please say aye. 25 MR. COX: Aye. 0029 1 MR. OLVERA: Aye. 2 MR. COX: Aye. Opposed, no? The vote is 3 three zero in favor. 4 Next we'll go to item number eight, 5 consideration of and possible discussion and/or 6 action, including adoption on new Rule 16 TAC 7 402.598, relating to charitable use of proceeds. 8 MR. OLDHAM: Thank you, Mr. Chairman. The 9 Charitable Use of Proceeds Rule was presented to the 10 Commission at the March 5th, 2004 Commission meeting. 11 At that time, the commissioners voted to publish the 12 rule for public comment for a period of 30 days. 13 That was also in the March 19th issue of the Texas 14 Register, and the comment period ended on April 20, 15 2004 -- or April 19th, rather, 2004. 16 The Commission did receive comment on this rule 17 from Mr. Stephen Fenoglio on behalf of the charities 18 that he represents. He indicated his comments 19 represented over 950 charities. The purpose of the 20 rule is to provide uniform guidance to licensed 21 authorized organizations regarding their use of 22 proceeds. It identifies the records relating to the 23 organization's charitable purpose, which must be 24 maintained by each organization and the information 25 related to their organization's charitable purpose, 0030 1 which must be submitted when an organization applies 2 for a license to conduct Bingo. The comment 3 specifically had to do with Subsection -- excuse me, 4 Subsection (e)(3), which is what the Commission would 5 look to in making a determination whether an 6 organization's use of proceeds was consistent or 7 inconsistent with the organization's charitable 8 purpose. And the comment suggested by Mr. Fenoglio 9 was that (e)(3) should be consistent with Subsections 10 (a) and Subsections (b), which deal with the 11 application process. And I'll try and clarify that 12 comment. What it has to do with is when an 13 organization applies for a license to conduct Bingo 14 and they have to prove up their charitable purpose, 15 under Subsection (a) or (b) they can provide a 16 multitude of documents. Some of the older 17 organizations would not necessarily have the actual 18 application for exemption that they submitted to the 19 IRS or the document coming back from the IRS saying, 20 you know, you are granted your tax exempt status 21 whether that be a 501(c)(3) or (c)(19) or whatever it 22 may be, especially some of these organizations that 23 are 50 years old. And so what the rule allows for is 24 that information contained in the organization's 25 Articles of Incorporation, or other type of document 0031 1 that they may have to file with their national 2 organization to maintain part of that body -- I know 3 the Red Men, they file every six months, I believe, 4 documents with their national organization to kind of 5 update, this is what we are doing type of thing. 6 Those documents could be used to determine what an 7 organization's charitable purpose would be in 8 addition to their Articles of Incorporation or other 9 enabling documents. And what the change does, 10 Subsection (e)(3), is allows the Commission to look 11 at those documents, not only what the organization 12 submitted to the IRS in determining what their tax 13 exempt status was for purposes of regulating their 14 charitable use of proceeds. 15 With that said, I'll be happy to answer any 16 questions and defer to Mr. Atkins. 17 MR. ATKINS: Commissioners, the staff would 18 recommend the Commission vote to adopt the new 19 Administrative Rule 402.598 Charitable Use of 20 Proceeds with the changes as it was published in the 21 Texas Register, but with the changes Mr. Oldham laid 22 out to Subsection (e)(3). 23 MR. CLOWE: Billy, is it your sense that 24 this gives the industry the guidance that they've 25 been asking for? 0032 1 MR. ATKINS: It does. Particularly in the 2 area, Mr. Chairman, of the types of receipts and 3 records that we will be looking for and accepting and 4 substantiating charitable activities that they can 5 doc -- with their proceeds from Bingo. 6 MR. CLOWE: You know, we heard quite a bit 7 of testimony on Sunset and I think from the BAC about 8 confusion in this area. And I hope this rule 9 addresses that and will enable the industry to have 10 the clarification that they need. Will you monitor 11 that as this goes -- if the Commission passes this 12 rule, and see what the response is on this after a 13 period of six to 12 months to see how we are doing? 14 MR. ATKINS: We'll do that. 15 MR. CLOWE: Anything further? Is there a 16 motion? 17 MR. COX: So moved. 18 MR. OLVERA: Second. 19 MR. CLOWE: All in favor, please say aye. 20 MR. COX: Aye. 21 MR. OLVERA: Aye. 22 MR. CLOWE: Aye. Opposed, no? The vote is 23 three zero in favor. 24 Next, item number nine, consideration of and 25 possible discussion and/or action, including proposal 0033 1 on amendment to 16 TAC 402.580 relating to Bingo 2 reports. 3 MS. JOSEPH: Commissioners, good morning. 4 My name is Sandra Joseph, Assistant General Counsel. 5 Before you is a draft rule amendment that changes the 6 due date of Bingo quarterly reports from the 15th to 7 the 25th of the month. HB 2519 was amended to change 8 the due date from the 15th to 25th. This rule 9 amendment would conform our rule to the statute. At 10 it's April 29th, 2004 meeting, the Bingo Advisory 11 Committee voted to recommend that this rule be 12 published for public comment. 13 I'll be happy to answer any questions. 14 MR. ATKINS: Commissioners, this is another 15 one of those areas that we received comment from 16 organizations quite a bit. The 15th due date was 17 often difficult for them to meet because they didn't 18 receive their records from the bank in a very timely 19 fashion, so it was making it difficult for them to 20 submit their quarterly reports. All this proposal 21 does is change the rule to be consistent with the 22 statute. And the staff would recommend that the 23 Commission vote to publish the proposed amendment to 24 Rule 402.580 Bingo Reports in the Texas Register for 25 30 days in order to receive public comment. 0034 1 MR. CLOWE: Any questions? Is there a 2 motion? 3 MR. COX: So moved. 4 MR. OLVERA: Second. 5 MR. CLOWE: All those in favor, please say 6 aye. 7 MR. OLVERA: Aye. 8 MR. COX: Aye. 9 MR. CLOWE: Aye. Opposed, no? The vote is 10 three zero in favor. 11 Thank you, Ms. Joseph. 12 Next item ten, consideration of and possible 13 discussion and/or action including adoption on 14 amendments to 16 TAC 402.567 relating to the Bingo 15 Advisory Committee. 16 MR. BENNETT: Commissioner, again for the 17 record, my name is Ridgely Bennett. I'm the Deputy 18 General Counsel. Staff recommends adoption to 19 amendments to Rule 16 TAC 402.567 relating to the 20 Bingo Advisory Committee without changes to the 21 proposed text as published in the April 16, 2004 22 issue of the Texas Register. The amendment changes 23 the date the Bingo Advisory Committee will 24 automatically abolish and cease to exist unless the 25 Commission affirmatively votes to continue the Bingo 0035 1 Advisory Committee from March 6, 2004 to August 31, 2 2005. At the March 5th, 2004 Commission meeting, the 3 Commission voted to continue the Bingo Advisory 4 Committee and to propose an abolishment date of 5 August 31st, 2005. The purpose of the amendment is 6 to continue the Bingo Advisory Committee so that the 7 committee can continue to advise the Commission as 8 provided for in the rule. 9 MR. CLOWE: Are there any questions? 10 MR. COX: No questions. 11 MR. CLOWE: Is there a motion? 12 MR. COX: So moved. 13 MR. OLVERA: Second. 14 MR. CLOWE: Moved and seconded, all in 15 favor, please say aye. 16 MR. COX: Aye. 17 MR. OLVERA: Aye. 18 MR. CLOWE: Aye. Opposed, no? The vote is 19 three zero in favor. 20 Billy, we have now taken action on a number of 21 rules that I think are the result of legislation 22 passed in the last regular session. What is your 23 appraisal of where we stand on the implementation of 24 rules to support that legislation? Have we completed 25 what's required or is there more work to be done? 0036 1 MR. ATKINS: There is some more work, 2 Chairman Clowe. I'm thinking specifically we have 3 rules that we are currently working on with legal 4 staff and the Bingo industry as they relate to 5 temporary licenses and the notification of changes 6 from the cancellation of a lease. And those are the 7 two that -- the only two that I recall still 8 outstanding as it relates to 2519. And I believe 9 it's the staff's intent to have those rules available 10 for you to consider for publication at the next 11 meeting. 12 MR. CLOWE: So we are really farther along 13 than 75 percent. We are in the home stretch. 14 MR. ATKINS: Yeah. I believe we are, yes, 15 sir. 16 MR. CLOWE: Okay. That's good. 17 MR. ATKINS: Now, having said that, there 18 are also some other rules that aren't necessarily 19 related to 2519 that we may also be bringing forward. 20 Okay. 21 MR. CLOWE: Well, I think there was a lot 22 of attention in the industry on the unit accounting 23 and the unit manager, and I'm glad to see that we 24 have moved along on those. There seems to be 25 unanimity in the industry with the Bingo Division 0037 1 that those rules are going to be important to them 2 and be helpful to them. 3 MR. ATKINS: And I'd also, Commissioners, 4 like to echo Mr. Bresnen's comment, the legal staff, 5 particularly Mr. Oldham and Ms. Joseph and the Bingo 6 Division staff have been working very closely and 7 very hard with the industry to negotiate these rules 8 that we have been bringing forward. 9 MR. CLOWE: Good. Thank you. 10 MR. BENNETT: And for the record, I would 11 think that that previous conversation fit well within 12 item, turn to item 28, the report by the Charitable 13 Bingo Operations Director. 14 MR. CLOWE: Very good. Thank you, sir. 15 Item number 11 next, report, possible discussion 16 and/or action on lottery sales and trends. 17 Mr. Deviney, good morning. 18 MR. DEVINEY: Good morning, Commissioners. 19 I'm Lee Deviney. I'm the Financial Administration 20 Director. Tab 11 of your notebook is a report of 21 lottery sales and trends. This morning we have 22 provided you with an updated report through May 22nd, 23 2004. The first memo indicates an unaudited fiscal 24 year 2004 sales through May 22nd amount to $2.431 25 billion. This represents a five-and-a-half percent 0038 1 increase over fiscal year 2003 sales of $2.304 2 billion for the same time period. The weekly sales 3 average is currently $64 million a week compared to 4 where we were in fiscal year 2003, which was $60.6 5 million per week. The second memo describes fiscal 6 year 2004 sales by product compared to 2003 for the 7 same time period. And you'll note that instant 8 tickets and Pick Three are posting the largest year 9 to -- year of sales increase at this time. The third 10 memo compares sales for the last few full weeks 11 ending May 22nd, 2004 and May 15th, 2004. Total 12 lottery sales increased by three-tenths of 13 one percent played by Lotto Texas, whose sales 14 increased by $1.4 million over the prior week. And 15 that concludes the lottery sales and trends report. 16 MR. CLOWE: Any questions from Mr. Deviney? 17 MR. COX: No. 18 MR. GREER: Commissioners? 19 MR. CLOWE: Yes. 20 MR. GREER: I'd like to bring your 21 attention to a new sheet that I'm pleased about. 22 It's the cover sheet on your packet. I asked them to 23 help me to get a better overall perspective, and I'm 24 real pleased with this format and just wanted you to 25 be aware of it. It gives a broader picture of where 0039 1 we are. 2 MR. COX: I don't have it. 3 MR. DEVINEY: Commissioner Cox gets a 4 separate report, but I'll be happy to provide him 5 with one right now. 6 MR. GREER: Okay. 7 MR. CLOWE: What? You mean he gets 8 something that we don't get? 9 MR. DEVINEY: Yes, sir. 10 MR. GREER: We touched on the averages a 11 moment ago from 60 to 64 million, but -- 12 MR. CLOWE: He's entitled to that. 13 MR. OLVERA: Our resident accounting 14 expert. 15 MR. GREER: What I really liked about this 16 is that you go through each game, see where they are, 17 take a look -- you know, since we started the year 18 out. This has been very useful as we look at a 19 comparison and get a better perspective on what some 20 of the weeks have done during jackpots. So I wanted 21 you to be aware of that and thank you, Lee, and your 22 group for putting that together. 23 MR. CLOWE: Thank you, Reagan. 24 Anything further on this item? 25 MR. COX: You'd probably like mine better. 0040 1 MR. CLOWE: I wouldn't understand it. 2 MR. COX: Oh, you would. I don't 3 understand this one. 4 MR. CLOWE: Next item 12, report, possible 5 discussion and/or action on HUB and/or minority 6 business participation, including the agency's 7 mentor/protege program. 8 Good morning, Joyce. 9 MS. BERTOLACINI: Good morning, 10 Commissioners. For the record, my name is Joyce 11 Bertolacini. I'm the agency's Historically 12 Underutilized Business Coordinator. And I'm here to 13 report on items related to our HUB and/or minority 14 business participation and mentor/protege program. 15 And I have good news. Included in your notebook are 16 two monthly reports, the HUB minority contracting 17 activity reports, and this was strictly due to the 18 timing of the last Commission meeting that you have 19 two in this notebook. These reports include all 20 fiscal year 2004 expenditures from September 1st, 21 2003 through March 31st, 2004 and April 30th, 2004, 22 respectively. Our total qualifying expenditures as 23 of April 30th were 97.8 million. And our estimated 24 HUB utilization was 29.9 million, which equates to 25 30.6 percent. 0041 1 And then also included in your notebook are a 2 series of summary reports that describe our agency's 3 performance on the semi-annual statewide HUB report 4 that was released by the Texas Building and 5 Procurement Commission in mid-April. The report 6 assesses our overall HUB participation for the first 7 six months of fiscal year 2004 at 30.8 percent. 8 During this report period, the agency more than 9 doubled the number of dollars spent with HUBs for the 10 same period in FY 2003. Due to greater overall 11 spending, our resultant HUB increase was 12 13.6 percent. The agency well exceeded the 13 professional services goal and was very close to 14 meeting the goals for both other services and 15 commodity purchasing. Special trade construction 16 remains our most challenging procurement area. For 17 the first six months of 2004 -- I'm sorry, for fiscal 18 year 2004, the agency, once again, attained the 19 highest overall HUB percentage among the top ten 20 largest spending state agencies. Regarding the 21 agencies mentor/protege program, three of our five 22 relationships came to an end in April of this year. 23 We are currently overseeing two relationships, one of 24 which will expire in July. We plan to begin 25 recruiting new participants for the program at the 0042 1 agency's annual HUB forum, which is scheduled to take 2 place on June 24th from 1:30 to 5:00 p.m. here at 3 Lottery Headquarters. 4 And Commissioners, I'd be happy to answer any 5 questions you have about any of the reports. 6 MR. COX: I do have a question, Joyce. 7 I've looked through this and I see some -- overall, 8 some incredible levels of participation among the 9 historically underutilized businesses. I do see one 10 particular account that doesn't have any. ADT 11 Security. Is that a -- is that reported correctly 12 and is there some particular reason they don't -- 13 MS. BERTOLACINI: Yes, sir, it is correct. 14 Not every single contract that we have necessarily 15 has opportunities for subcontracting. And as it 16 currently stands, the vendors have the option of 17 telling us whether they plan to subcontract or not 18 when they do their -- when they submit their 19 proposal. And in that particular case, ADT declared 20 that they would not be subcontracting at all. 21 MR. COX: So they just -- they do it all 22 in-house? 23 MS. BERTOLACINI: Right. Right. 24 MR. COX: And this report does not enable 25 them to report their in-house employment of 0043 1 historically underutilized types of folks -- 2 MS. BERTOLACINI: Right. 3 MR. COX: -- because they're not 4 businesses? 5 MS. BERTOLACINI: That's correct. 6 MR. COX: Thank you. 7 MR. CLOWE: Joyce, we are very pleased with 8 this report and we're proud of the work that you and 9 others have done at the agency. And we remain 10 vitally interested in maintaining a high level of 11 participation in this area. And we hope that you can 12 be creative and innovative in that mentor/protege 13 program. We started that off and had great success 14 with it. We have had a series of meetings and 15 whatever the Commissioners can do to help you in that 16 regard, I know they're ready to be supportive. 17 MR. COX: Absolutely. 18 MS. BERTOLACINI: Yes, sir. And I would 19 like to invite all of you to attend our HUB forum on 20 the 24th of June, if possible, but I know we may have 21 to do an official meeting notice just in case more 22 than one of you show up. So I will try to take care 23 of that with our general counsel. 24 MR. CLOWE: We'll coordinate through you. 25 I know it's hard for Commissioner Olvera to get to 0044 1 Austin from Brownsville, but Commissioner Cox is 2 here, and it's easy for me to get here. Perhaps he 3 and I could coordinate through you and split our 4 appearances so that we could each be there for a 5 period of time. We'll try to work on that. 6 MS. BERTOLACINI: That would be much 7 appreciated. Thank you. 8 MR. CLOWE: We will not be calling a 9 meeting of the Commission for that. We'll work it 10 like we do the BAC. 11 MR. BENNETT: Thank you, Commissioners. 12 MR. CLOWE: Any further questions or 13 comments for Joyce? 14 MR. GREER: Mr. Chairman, on the 24th I 15 will be making an opening remark there and really 16 excited about what's going on in this area. We had 17 set a goal for this year, for our fiscal year of 20 18 percent. And when I see numbers like this and the 19 work that they're doing to be proactive on this, I 20 wanted to thank you for your comments and thank Joyce 21 for her work and moving forward on this issue. 22 MR. CLOWE: And that is June the 24th? 23 MS. BERTOLACINI: Yes, sir. From 1:30 to 24 5:00 p.m. 25 MR. CLOWE: Okay. Great. Thank you very 0045 1 much. 2 Next item number 13, report, possible discussion 3 and/or action on the agency's contracts. 4 Mr. Deviney? 5 MR. DEVINEY: Again, I'm Lee Deviney, 6 Commissioners. Tab 13 includes a weekly status 7 report on Lottery Commission contracts that have an 8 estimated value of $25,000 or more. If you have any 9 questions regarding any of the contracts in the 10 report, either I or a representatives of one of the 11 administrative divisions can answer it for you. 12 MR. CLOWE: Any questions? 13 MR. COX: I'll ask it again this year. 14 We -- seems like every contract in this place expires 15 on August 31st. And I know that's the end of the 16 fiscal year. Does that create on incredible peak 17 load of work that should be spread over the year? 18 MR. DEVINEY: We do attempt to manage that, 19 because yes, it can be a problem if all the contracts 20 hit at once. But we try to get ahead of these things 21 six months out to avoid that crunch. 22 MR. CLOWE: Commissioner Cox, I know that 23 you were at the Sunset hearing where the Commission 24 appeared and responded to questions. Commissioner 25 Olvera, the Commissioner's involvement and oversight 0046 1 on contracts was the subject of that report. 2 I just wonder, Commissioner Cox, what's your 3 comfort level at this point in time in that regard? 4 Do you see anything more that the Commissioners 5 should be doing at this time, or how do you feel 6 about that with regard to the direction of the Sunset 7 Committee's recommendations since? 8 MR. COX: Well, if I recall their 9 recommendation, it was that the Board should exercise 10 more oversight over contracts. And as I understood 11 it, it was in the context of the broad authority 12 which the statute gives the executive director. 13 Personally, I've been very comfortable with the 14 balance that we have achieved, which is on the one 15 hand giving us oversight authority and keeping us 16 informed of the things that I think we should know 17 about before they're done and the need of this 18 organization as a business to make decisions more 19 rapidly than typically a government agency would be 20 able to make them. 21 MR. CLOWE: Right. 22 MR. COX: But I think we have got a pretty 23 good balance, Mr. Chairman. 24 MR. CLOWE: And Commissioner Olvera, are 25 you satisfied with the information that you're 0047 1 getting and the involvement that you are seeing? And 2 is there anything further that you would like? 3 MR. OLVERA: No, Mr. Chair. I would like 4 to reiterate the comments of Commissioner Cox in that 5 I think there's a very well defined balance at this 6 point, and I would have concerns both legally and 7 logistically in the day to day running of this entity 8 if -- if and how we were somehow to get more 9 involved. I don't see how that could take place as a 10 governing body, because obviously the entity has a 11 responsibility to run this entity on a day to day 12 basis. And getting involved in the day to day 13 contracts would be difficult. It would be difficult. 14 MR. CLOWE: Reagan, you know, probably the 15 executive director of this agency has more authority 16 than many others. And that's been brought to the 17 attention of ourselves and the Legislature more than 18 once. I think it should be said, in addition to what 19 you've heard now from your Commissioners, that we 20 want to be aware before decisions are made and kept 21 up to date. And I think we all three are expressing 22 satisfaction with the level of communication, but we 23 want to be mindful the Sunset Committee's 24 recommendations and be diligent in the pursuit of our 25 oversight responsibilities, but not take your job 0048 1 away from you. And that is a delicate balance. 2 MR. COX: True. 3 MR. GREER: Mr. Chairman, from my 4 perspective, when I came on board that recommendation 5 was already out there, and I fully support what the 6 recommendation had as far as the verbiage and the 7 intent and will continue to keep you apprised of 8 things ahead of time. And I think we have done a 9 good job up to this point and will continue to work 10 on that. No issues. 11 MR. CLOWE: Thank you. 12 Next is item 14, report, possible discussion 13 and/or action on the agency's financial status. 14 MR. DEVINEY: Under tab 14 you will find 15 the summary docket of expense budget reports for 16 lottery operations and Charitable Bingo Division from 17 September 1 through April 30th of this year. 18 Next you'll find a report on transfers made to 19 the Foundation School Fund and allocations of 20 unclaimed prize money. The April transfer to the 21 Foundation School Fund will amount to $73-and-a-half 22 million, and we have already made that transfer. 23 Finally, you will find a report of lottery 24 revenues, expenditures and transfers from fiscal year 25 1992 to date. Today total transfers to the State 0049 1 amount to $11.4 billion dollars. 2 I'd be pleased to answer any questions that you 3 have regarding these reports. 4 MR. CLOWE: Are there any questions? 5 MR. COX: No. 6 MR. CLOWE: Thank you, Mr. Deviney. 7 We will now take up item 15, report, possible 8 discussion and/or action on the Commission's on-line 9 lottery games. 10 Mr. Tirloni? 11 MR. TIRLONI: Good morning, Commissioners. 12 For the record, my name is Robert Tirloni. I am the 13 On-line Product Manager for the Commission. 14 MS. JAMBOR: Good morning, Commissioners. 15 For the record, my name is Liz Jambor. I'm the 16 Senior Marketing Research Specialist and the Acting 17 Instant Product Manager. 18 MR. MARTIN: Good morning, Commissioners. 19 I'm Steve Martin. I am the Marketing Director with 20 the agency. 21 MR. CLOWE: Good morning. 22 MR. TIRLONI: Commissioners, we are back 23 this month to give you a brief update of the Mega 24 Millions game and the Lotto Texas game. Most of this 25 information we have covered in previous months. We 0050 1 have updated it. We do have a few new slides, 2 though, to share with you this month. Since we last 3 met in April on the 12th there have been two roll 4 cycles on the Mega Millions game. One of those roll 5 cycles climbed up to $66 million. There was a 6 jackpot ticket sold in New York in early May. And we 7 are currently in a roll cycle that started on May 11 8 and we currently have an advertised jackpot of $42 9 million for tomorrow's drawing. And I'm also pleased 10 to say that our lotto jackpot rolled last night and 11 we are currently at $70 million for this Saturday's 12 Lotto Texas drawing. Just a quick update on where we 13 are on sales. Since Mega Millions started in early 14 December in Texas we have realized over $115 million 15 in Mega Million sales, over $30 million on Megaplier 16 sales giving us a total of over $145 million on the 17 game. Another brief update on winners. This 18 information is current through this past Tuesday's 19 drawing. We have had over 44 $175,000 winners in 20 Texas, eight of those winners have Megaplied their 21 purchase. And we have had over -- I'm sorry, we have 22 had 194 $5,000 prize winners. That's a $5,000 prize. 23 And out of those, 51 have Megaplied their prize 24 amount. 25 We continue to track Mega Millions and Megaplier 0051 1 sales in Texas. There's probably two things worth 2 noting on this graph. This roll cycle that we are 3 currently in is a bit lower than the previous roll 4 cycle. This seems to be happening across the board 5 in all of the 11 participating states. This roll 6 cycle, the one that climbed up to 66 million did 7 start immediately after a triple digit jackpot. 8 There was a $105 million jackpot right before that 9 roll cycle started, which typically gives you higher 10 sales at the beginning of your next cycle. That's 11 pretty typical. And this roll cycle that we are in 12 currently, as I said, follows 66 million, that could 13 be part of the reason why the sales are a bit lower. 14 Also, when this jackpot cycle started at ten, lotto 15 was already at 26 million, which could also have an 16 impact on Mega Million sales. 17 That being said, we continue to be very pleased 18 with the performance of the Megaplier game. This 19 number has been very consistent since our start in 20 December. And the Megaplier sales are right at 21 20.7 percent of the total Mega Million sales, and 22 that's been, as I said, very consistent every month. 23 This graph tracks our Lotto Texas and Mega 24 Millions jackpot rolls. We are -- the blue is Lotto 25 Texas. And you can see, this is the current roll 0052 1 cycle that we are in. This was updated yesterday 2 afternoon, so this doesn't go all the way up to 70 3 since the drawing was just last night. What's worth 4 noting on this slide, this roll cycle on Lotto, it's 5 taken us 27 drawings to get to where we currently are 6 at 70. This roll cycle which started November also 7 brought us up to 70. That took us about 24 rolls. 8 The important thing to note is that early on in this 9 roll cycle that we are currently in, we realize some 10 of the lowest interest rates in quite a long time and 11 that affected our early jackpot rolls. 12 This next graph paints the picture of the sales 13 for all states. Again, you'll note that all states 14 have seen a bit of a dip on this current roll cycle 15 as compared to the last roll cycle. And again, I 16 would attribute that to the fact that this roll 17 cycle, this earlier roll cycle began right after a 18 $105 million jackpot amount. 19 We continue to also track total sales for a 20 completed roll cycle so the last completed roll cycle 21 is this cycle that went up to 66 million. You see in 22 terms of sales for the cycle, Texas is in about third 23 place in terms of total sales. When we look at that 24 on a per capita basis, which has more meaning, we 25 tend to fall towards the bottom of the pack. 0053 1 That being said, I think that's a good segue 2 into some research that we have just recently done in 3 May. We went out and talked to players in McAllen 4 and in Dallas in early May, Commissioners. And we 5 wanted to talk to them about the brand equity in the 6 Lotto and in Mega Millions. I think the Commission 7 knows that we enjoy very strong brand recognition in 8 our Lotto product. In fact, mistakenly a lot of 9 people refer to this agency and this Commission as 10 the Texas Lotto Commission. We went out and wanted 11 to talk to players about why that is and find out 12 what makes Lotto different from Mega Millions in 13 players' minds, because they're basically both large 14 jackpot games with two drawings a week. We wanted to 15 get players opinions on that now that we have some 16 history of the game, five to six month's worth. So 17 as I said, we did some focus groups in McAllen and in 18 Dallas. The final report from the research company 19 is not in yet, but I do have a few top line slides 20 for you. It seems that players have a higher comfort 21 level with the Lotto Texas game. And the players 22 express that they trust the Lotto Texas game. They 23 feel more knowledgeable about it as a whole. And 24 players also feel very loyal to Lotto because it is a 25 Texas game and has had a long tenure in the state. 0054 1 Players tend to be confused about the use of lottery 2 proceeds in general. However, related to Mega 3 Millions, they're quite skeptical and confused about 4 the proceeds. And many of them have the 5 misconception that the revenue from Mega Millions 6 does not stay within the state of Texas. And this 7 factor seems to have the biggest influence on player 8 spending, especially at the lower level jackpots. It 9 seems when -- and we have talked about this a few 10 times in past meetings, but it seems when Mega 11 Millions climbs up to a triple digit jackpot that 12 care or concern seems to go by the wayside. But at 13 the lower level jackpots, it seems to have a big 14 impact on player spending. 15 MR. COX: Robert? 16 MR. TIRLONI: Yes, sir. 17 MR. COX: I continue to be surprised by how 18 confused people are about where all of our proceeds 19 go. 20 MR. TIRLONI: Yes, sir. 21 MR. COX: Are they even more confused about 22 Mega Millions than they are about things in general? 23 MR. TIRLONI: I would say yes, they are 24 more confused about Mega Millions proceeds. And what 25 we have been doing, we are printing on the front of 0055 1 all of our on-line tickets, the message, contributing 2 to the Foundation School Fund. That's also on the 3 back of our instant tickets. So we continue to try 4 to get that message out in a lot of different venues 5 and are going to continue to do that. Also, we knew 6 that this was going to be an issue when we launched 7 Mega Millions. And when we launched that game, we 8 used the tag line on all of our advertising. And 9 that tag line was, Mega Millions proceeds benefit 10 Texas. And so on future advertising that we are 11 working with The King Group on right now, any 12 reference to Mega Millions in any type of TV or radio 13 ad, we are using that tag line that the proceeds do 14 benefit Texas to continue to try to educate the 15 public about that. 16 MR. COX: One thing that that would -- that 17 just occurred to me is you used the words, 18 "contributing to" and "benefit from." Those are 19 different from, "all net proceeds go to." You might 20 think about a way to communicate that this isn't a 21 token contribution. This is all net proceeds going 22 to those purposes. 23 MR. TIRLONI: Okay. 24 MS. JAMBOR: As we have done in the past, 25 we provide you with some continued monitoring of the 0056 1 impact of Mega Millions on the current game mix. And 2 what we are seeing across FY '03 to FY '04 in the 3 first 38 weeks of both years is a sales shift in 4 Lotto Texas of almost 25 percent. And this has been 5 fairly consistent over the past six months of having 6 Mega Millions in the State of Texas. If we look at 7 just the 25 weeks that was pre- and post-Mega 8 Millions, we see that there's only been about a 9 two percent decrease in Lotto Texas. And part of 10 this is due to the long-term roll cycles that Lotto 11 Texas has been experiencing since Mega Millions came 12 to Texas. Nicely though, when we compare FY '03 to 13 FY '04 in the first 38 weeks of each year, for 14 on-line games we are seeing an increase of 15 4.3 percent and total sales of 5. -- an increase of 16 5.5 percent. So bringing Mega Millions into the 17 state has helped increase overall sales. 18 This slide nicely supports what we heard from 19 the players. And it's -- for me, it's always a good 20 thing when you have the sales figures to support what 21 players are telling you. Robert made reference to 22 the loyalty that players feel towards Lotto Texas, 23 the comfort that they feel towards Lotto Texas. And 24 this slide does indicate that. What we see here are 25 weekly sales by jackpot for Lotto Texas in the blue 0057 1 line and Mega Millions in the red line. And if you 2 look at a couple of different points, here when Lotto 3 Texas was at 21 and 24 million, respectively, for the 4 week, and Mega Millions was at 90 and 105 million for 5 the week, sales were fairly comparable indicating 6 that players are still loyal to Lotto Texas. They 7 still have a trust in the game. And they still have 8 a comfort with the game. It also indicates that the 9 start of jackpot fever is very different in the two 10 games. Players are viewing the two games very 11 differently. If you see -- with Lotto Texas, we have 12 got a nice linear line until we hit about 46 million, 13 and then we start to see a little bit more 14 exponential line in sales related to jackpot. 15 Whereas with -- if we go back here to this roll cycle 16 when we went up to the 230, the exponential increase 17 for Mega Millions happened at about the 85 to $102 18 million week that we had. So although the games are 19 similar, players are still viewing them differently, 20 and we are still seeing a lot of support for Lotto 21 Texas. 22 And as we have shared before, an increase in 23 game variety and choice comes an -- brings an 24 increase in sales. There are more dollars that are 25 being generated by the Texas Lottery with the 0058 1 inclusion of Mega Millions. The more dollars that we 2 can generate means more money that we can return to 3 the State. And if you have any questions, we'll be 4 happy to answer them. 5 MR. CLOWE: Any questions? 6 MR. OLVERA: (Shakes head.) 7 MR. TIRLONI: Commissioners, if I may, I 8 just want to add one final point. We are on track in 9 moving our Texas Two Step game to Mondays and 10 Thursdays. That will take place in late June. The 11 first Monday drawing will be on Monday, June 28th. 12 And the first Thursday drawing for Two Step will be 13 on Thursday, July 1st. And that change is being made 14 to reduce the amount of competition Texas Two Step 15 faces on Tuesdays and Friday nights from the Mega 16 Millions game. 17 MR. GREER: I've got a couple of points I 18 wanted to add in. One was specifically the slide on 19 the 2.1 percent decrease of the post and pre -- 20 that's a huge slide, from my perspective, which is 21 giving us a real good weight on what's going on in 22 the game overall, I think. Many of the factors that 23 I think have led to some of the numbers on Lotto 24 Texas had nothing to do, you know, with Mega 25 Millions. There was still an adjustment to the bonus 0059 1 ball and other issues that were going on that the -- 2 the thing that Liz touched on that I just can't lose 3 sight of is how the overall on-line picture has 4 improved percentage wise. There's a higher level of 5 enthusiasm in the game. Even though there is a 6 distrust factor, I think that we are beginning to see 7 that the message is taking hold. As I do interviews 8 and talk to varying people about this, that's the 9 first thing they ask, where does the money on Mega 10 Millions go? And when I reinforce that 38 cents on 11 the dollar stays in state when you buy a Mega 12 Millions ticket, 46 cents on the dollar on the 13 Megaplier, it's just going to be a continuing, you 14 know, issue for us to get the word out on that. 15 And, you know, when you look at the big picture, 16 which is obviously a part of what we are focused on, 17 moving Texas Two Step, I think, will be interesting 18 to watch how that plays out so it has it's own draw 19 night. And I think that the thing I wanted to give 20 you an opportunity to give consideration toward is 21 that, Mr. Chairman, we talked about a six-month 22 review on Mega Millions. We are coming up on that 23 next month. We'll have a full report and an overview 24 on the progress that we have made on some of the 25 issues that we brought forward initially when we 0060 1 joined the game. And I'm pleased to say now and will 2 continue to monitor, but the things that we are 3 focusing on, back to the agreement, many of those 4 issues are being addressed, and I'll look forward to 5 giving you a full report on that. 6 In reference to what we just talked about on 7 this item, the comfort level that I wanted us all to 8 have from the Lottery's perspective in monitoring 9 these numbers is something we'll continue to do on a 10 -- we can do it on a monthly basis during this time 11 frame; we can do it on a quarterly setting after the 12 six-month mark. I'll follow your lead on how you 13 want to do that. This was something that -- this 14 item was added and specifically it was to watch what 15 was happening in all of the on-line games. We see 16 the same report now kind of trends and things that 17 are going on like that, so for your consideration, if 18 you want to continue this on a monthly level, 19 obviously that's great. If you want to do it 20 quarterly, we can go that route after we hit the 21 six-month mark. So I just wanted to throw that out 22 for your thought. 23 MR. COX: Reagan, I think this is a great 24 report. And I suspect it takes quite a bit of time 25 to prepare, but I would like to see something like 0061 1 this, maybe an abbreviated version of this with the 2 beefed up version of the sales of the other products. 3 MR. GREER: Okay. 4 MR. COX: You know, right now we get this 5 report which is a good report, but this really gives 6 me a better grasp of what's going on than a sheet of 7 paper does. And if you could incorporate some of the 8 other products, maybe all of the other products -- 9 MR. GREER: Okay. 10 MR. COX: -- in a PowerPoint like this, I 11 think that would help me. 12 MR. GREER: Well, I've enjoyed the 13 opportunity that the visual has done, because it does 14 give you a different feel for what's going on. And 15 so I think that would be something we can certainly 16 embrace. I want to thank Liz and Robert, who have 17 done a great job on this. Steve has stepped right 18 up, as well, to, you know, make these presentations 19 meaningful and we'll follow through on that. 20 MR. OLVERA: My note on that, Reagan, is 21 that I'd like to see these reports at least for this 22 first year. 23 MR. GREER: Okay. 24 MR. OLVERA: And that's just my commentary. 25 I know Commissioner Cox touched on it, but I do want 0062 1 to emphasize that at least in private conversations I 2 don't think we can emphasize enough the message where 3 the net proceeds go. And I really want to avoid 4 generalities in terms of benefitting the State or 5 benefitting Texas and really be very, very specific 6 as to the net proceeds going to the School Foundation 7 Fund. And I can't emphasize that enough, because 8 that's the most often question we get, I think, as 9 Commissioners is, where does the money go. 10 MS. JAMBOR: And just to follow-up to that, 11 when we do inform players in research that the money 12 does go toward education, you can almost picture a 13 sense of relief that comes over them because they 14 then realize, okay, now my spending on this game, 15 this entertainment has really been worth it. And 16 they -- they feel much better about the game, 17 regardless of whether it's Mega Millions, Lotto 18 Texas, instants. They really do appreciate getting 19 that information and knowing the money does go toward 20 education. 21 MR. OLVERA: Well, and that falls in line, 22 I think, with some of the data you presented a couple 23 of months ago that even people that are opposed to 24 the Lottery are in favor of the funds going to 25 education. 0063 1 MS. JAMBOR: That's correct. 2 MR. MARTIN: And we do have plans for 3 additional activities, as well. 4 MR. GREER: Well, thank you for your input 5 on that. We'll follow through on those comments. 6 And again, thanks to the staff for their work on this 7 issue. 8 MR. CLOWE: Very good. Anything further? 9 Steve, anything further from you? 10 MR. MARTIN: Just the next agenda item 11 there. 12 MR. CLOWE: We'll go to that, item number 13 26 [sic], report, possible discussion and/or action 14 on lottery advertising and promotion. 15 MR. MARTIN: Yes, sir. Again, for the 16 record, my name is Steve Martin. I'm the Marketing 17 Director for the agency. You'll see some point of 18 sale materials there in front of you, the red and the 19 yellow pieces. As Robert mentioned, with the Texas 20 Two Step day change, that gives us the opportunity to 21 talk about the fact that we now have the chance to 22 win a jackpot style game every day, except for 23 Sunday, of course. That piece is a -- and part of a 24 campaign, we will also -- we are working on some TV 25 and radio that will promote that fact, as well, 0064 1 emphasizing the chance to play a jackpot style game 2 every day. 3 In addition to that, for update on lottery 4 advertising and promotions, Mega Millions game launch 5 campaigns from the two advertising agencies, DDB and 6 The King Group, has provided players a good 7 introduction to the newest on-line game in Texas. 8 Our two agencies, DDB and The King Group, have both 9 produced winner awareness campaigns that we are about 10 to roll out. Actually, some of the DDB has already 11 been put on the air. And King Group, we are 12 finalizing the radio and TV for those spots. Both 13 campaigns focus on real winners with a variety of 14 games and prize amounts, so not only just showing the 15 variety of games but that there's also a variety of 16 levels of prize winnings. The planned winners 17 campaigns from the two agencies are anticipated to be 18 very successful based on player recall and success of 19 past winners campaigns. 20 There's also two other bullets on my memo that 21 are more relative to the ad services contract. We 22 can bring those up now or I can go over them when 23 Ridgely brings up the services contract. 24 MR. BENNETT: Commissioner, that's under 25 agenda item number 22. 0065 1 MR. MARTIN: That's item 22. 2 MR. CLOWE: Steve, before you became an 3 employee of this Commission, I think Commissioner Cox 4 raised the question of the effectiveness of 5 advertising. 6 MR. MARTIN: Yes, sir. 7 MR. CLOWE: And I'd like to say that I 8 don't think we ever really got that question 9 completely answered, did we? 10 MR. COX: I don't believe we even got it 11 partially answered. 12 MR. CLOWE: I didn't want to say that, but 13 that's my impression as well. 14 MR. MARTIN: We are working on an answer 15 for you on that. Actually, I'll -- I'll defer to Liz 16 on the status of that. 17 MS. JAMBOR: The ad agency, DDB, has a 18 subgroup called The Matrix Group, and they have 19 performed an analysis on -- it's a multiple 20 regression analysis looking at the impact of 21 advertising dollars on incremental sales. That 22 report has been completed. It's going to be 23 presented internally. And at that point we can then 24 discuss if it gets reported in an open Commission 25 meeting. Bottom line, it did -- it did indicate that 0066 1 there is an effectiveness of spending ad dollars, 2 specifically in television, radio and billboards. To 3 follow up with that, we have found in our player 4 research that the winners campaigns have had some of 5 the highest recognition, unaided recognition of ads 6 that we have ever produced. So we are going down the 7 right path as far as doing winner awareness, winner 8 campaigns. We are supporting that with quantitative 9 information that shows that the advertising spending 10 is worthwhile. 11 MR. CLOWE: Okay. That's a general 12 comment. And I agree with Commissioner Cox, you 13 know, I don't think we have partially answered this 14 question. I think if we were a private corporation 15 doing $3 billion a year, we would have a better 16 answer to where our money -- and it's, what, Steve, 17 this year, this fiscal year, 30-how-many million? 18 MR. MARTIN: 34, 34 million. That's for 19 both. 20 MR. CLOWE: I think we'd have a better 21 answer, you know, where our advertising money is 22 going and it's effectiveness. And, you know, I thank 23 Commissioner Cox for bringing that question up. And 24 I think we ought to keep asking it. And I just don't 25 think we have got an answer to it yet. And when we 0067 1 sit here and spend that kind of money every year -- 2 I'm convinced as a generalization we need to 3 advertise. I certainly am in agreement with that, 4 but I just don't think, as Commissioner Cox said, we 5 have partially answered the question, where are we 6 getting the best bang for the buck. And I think we 7 need to know that. 8 MR. MARTIN: Yes. In addition to the 9 study, we are looking at additional ways to tie in 10 response to advertising, whether it's through the web 11 site or response to some type of coupon, direct mail, 12 that kind of thing, that way you can actually track 13 response to your efforts. 14 MR. CLOWE: I think you've done a great job 15 in this report of showing us where the on-line games 16 are going and what the relationship is. That's the 17 kind of detail I think this Commission wants -- 18 MR. MARTIN: Yes, sir. 19 MR. CLOWE: -- on the spending of our 20 advertising dollars. Let's -- let's work on that. 21 Let's get something that is as good and as detailed 22 and convincing as this is so we can lay this issue to 23 rest and get some comfort. 24 MS. JAMBOR: And I think with the results 25 of the study that was just performed we are going to 0068 1 get closer to that answer. 2 MR. CLOWE: Okay. I appreciate that -- 3 MS. JAMBOR: I think you'll have more 4 comfort level. 5 MR. CLOWE: I think we have heard that 6 before, and we have heard the presentation, and it 7 didn't give us comfort. So Commissioner Cox is too 8 nice. He won't bring it up again, but -- 9 MR. COX: Well, I do have this draft report 10 which gives me some encouragement that they're making 11 progress toward trying to get an answer. 12 MR. CLOWE: We are going to -- we are going 13 to insist that you keep working on that until we 14 become convinced that we know how effective our 15 advertising dollars and a breakdown between the 16 different media outlets on that. It's too much money 17 and it's too important -- 18 MR. MARTIN: Certainly. 19 MR. CLOWE: -- not to pursue. 20 MR. GREER: Mr. Chairman, I want to 21 reinforce my complete commitment on that issue on one 22 of the things that we talked about. When Steve came 23 on board, he has a background in advertising, 24 promotions, tv, has a much clearer understanding and 25 has been asking a lot of good questions on that 0069 1 issue. I meet with DDB on a quarterly basis, and we 2 continue to keep the issue burning. And that's what 3 I'm -- I'm looking forward for their report, as well, 4 so I just wanted to reinforce that. 5 MR. CLOWE: Okay. Well, Steve, the 6 honeymoon is coming to an end. It's getting to be 7 your problem now. Okay? 8 MR. MARTIN: I'll take that problem. We 9 will follow up on that and in addition to the study 10 identify some other ways to show that. 11 MR. CLOWE: Anything further, 12 Commissioners? 13 MR. OLVERA: I have a side question totally 14 unrelated to anything. 15 Mr. Bennett, could we please identify this fine 16 gentleman who's taking these photographs? I have no 17 objection to it, but do we know him? 18 MR. BENNETT: I believe he's with the AP. 19 If he'd like to introduce himself, he's more than 20 welcome to. 21 MR. CABLUCK: Sure, Harry Cabluck, 22 Associated Press. 23 MR. OLVERA: Welcome, sir. 24 MR. CLOWE: Okay. We are going to take a 25 ten minute break. And I have approximately ten til 0070 1 10:00 at this point. We'll be back at 10:00 o'clock, 2 please. 3 (Short recess.) 4 MR. CLOWE: Come back to order, please. It 5 was suggested at the break that the three 6 Commissioners put numbers on their back and challenge 7 anybody to a three-man bowling or a three-woman 8 bowling competition since we are in uniform today, 9 but I believe we'll pick a different sport. I think 10 maybe we'll see where our talents lie and we will 11 make a public notice on it, Ridgely, so that -- 12 MR. BENNETT: Thank you, sir. 13 MR. CLOWE: We'll next go to item 17, 14 report, possible discussion and/or action on the 78th 15 Legislature and/or implementation of legislation 16 affecting the Texas Lottery Commission. 17 MS. TRAVINO: Good morning, Commissioners. 18 For the record, I'm Nelda Trevino, the Director of 19 Governmental Affairs. 20 A very brief report today in regards to the 78th 21 Legislature. The fourth called special session 22 concluded on May 17th. And in your notebooks is a 23 Legislative tracking report of the bills that we 24 monitored during this special session. On another 25 matter, the house committee on licensing and 0071 1 administrative procedures chaired by Representative 2 Kino Flores is scheduled to meet on Tuesday, June the 3 1st at the State Capitol in Room E2.026. The agency 4 has been asked to address the committee on the use of 5 outside counsel in connection with a video lottery 6 system in Texas. Additionally, at the request of 7 Chairman Flores, we are providing to the committee 8 various documents related to this matter. And we 9 have been in discussion with the Office of the 10 Attorney General's staff to coordinate providing 11 those documents to the committee. 12 This concludes my report on this agenda item, 13 and I'll be happy to answer any questions that you 14 might have. 15 MR. CLOWE: Are there any questions? 16 MR. COX: No, sir. 17 MR. CLOWE: I want to make a comment under 18 this item. I want to thank the members of the staff 19 for the extra time and effort that has gone into work 20 and preparation of information that's been requested 21 of this agency as a resource. Above and beyond that, 22 I want to thank on behalf, I think I can say, of 23 Commissioner Olvera and myself, Commissioner Cox for 24 the time and effort that he put in and brought his 25 expertise to bear to benefit this agency and the 0072 1 people of the State of Texas to answer questions and 2 to respond to informational requests that were put 3 upon this agency. His knowledge and background of 4 the gaming industry is invaluable to this agency. 5 And he provided guidance and counseling that was -- 6 and continues to be extremely valuable to this state. 7 I know that there were many of you who put in extra 8 hours and extra effort. You're all paid employees. 9 Commissioner Cox isn't. And I want to acknowledge 10 the extra and tremendous beneficial effort that he 11 put forth in this activity. And I think I can speak 12 for Commissioner Olvera and myself, we are so 13 fortunate to have him on this Commission with his 14 experience and knowledge and his judgment. 15 Anything further, Nelda? 16 MS. TRAVINO: Not on this item. 17 MR. CLOWE: You had another item. Does 18 that come up under -- 19 MS. TRAVINO: On the next agenda item. 20 MR. CLOWE: On item number 28 [sic]? 21 MS. TRAVINO: Yes, sir. 22 MR. CLOWE: Okay. Then we'll move to that. 23 And that is report, possible discussion and/or action 24 on the Sunset process involving the agency. 25 MS. TRAVINO: Commissioners, the Sunset 0073 1 Advisory Commission held a public hearing on May the 2 18th to consider the Sunset staff report related to 3 the agency. In your notebook is the Sunset 4 Commission hearing material that summarizes the 5 recommendations that were made by the Sunset staff. 6 The document also includes the agency responses to 7 each of the recommendations. And it also includes 8 the Bingo Advisory Committee's responses to the 9 recommendations related to Bingo. Agency staff is 10 requesting Commission action today regarding the 11 recommendation relating to the expanding of the size 12 of the Commission from three to five members. 13 Chairman Clowe did report to the Sunset Commission at 14 their hearing last week that this matter would be 15 discussed by our Commission, and that any responses 16 related to this issue would be reported back to the 17 Sunset Commission. For your reference, this matter 18 is discussed on page five of the hearing material 19 document contained in your notebook. 20 And lastly, the Sunset Advisory Commission is 21 tentatively scheduled to hold their next hearing on 22 July the 13th and 14th. At this time, they will make 23 their decisions related to the Sunset staff 24 recommendations for the full Legislature to consider 25 when it convenes for its regular session in January 0074 1 of 2005. 2 This concludes my report. And again, as I 3 mentioned, we are requesting Commission action as it 4 relates to issue to -- on the recommendation of 5 expanding the Commission from three to five members. 6 MR. CLOWE: And Mr. Bennett, this is 7 properly noticed so the Commission can deliberate? 8 MR. BENNETT: It is, Commissioners. Yes. 9 MR. CLOWE: And the Commission can ask for 10 a vote; is that correct? 11 MR. BENNETT: That's correct. This is 12 noticed as an action item. 13 MR. CLOWE: Commissioner Olvera, I think 14 some of this took place before you came on this 15 Commission. And if I may, Commissioner Cox, I'd like 16 to -- 17 MR. COX: Please. 18 MR. CLOWE: -- recount my recollection of 19 the history. In the initial Sunset review, each 20 Commissioner visited with the Sunset Committee 21 individually. 22 MR. COX: (Nods head.) 23 MR. CLOWE: And I had no knowledge of what 24 the other Commissioners said to the Sunset staff, but 25 one issue was raised, and that was increasing the 0075 1 number of Commissioners on this board from three to 2 five. And my recollection is they gave me the 3 comment that that's their standard recommendation. 4 They don't like, for whatever the reasons, 5 three-member commissions. And I think one reason 6 that I do recall was that it didn't allow two 7 commissioners to get together and be on a 8 subcommittee or talk about issues. And at that time 9 I agreed with it personally and the Commissioners 10 agreed with that recommendation and voted to be a 11 part of that three to five recommendation. Since 12 that time, I personally have given that a great deal 13 of thought and have studied it and talked to other 14 individuals whom I know who have served on 15 commissions and asked for the benefit of their 16 experience, and I have changed my mind personally. 17 And it's my personal opinion that this Commission 18 should remain at three board members. I have 19 expressed that personal opinion, not the opinion of 20 the Commission, to the chairman of the Sunset 21 committee, Chairman Solomans (Phonetic). I expressed 22 it to the committee in my testimony before them in 23 response to questions. Prior to that time, I had 24 shown the Sunset staff the courtesy in my meeting 25 with them on this round of interviews prior to their 0076 1 report coming out that I changed my mind and wanted 2 to give them a heads up on that. My feeling is that 3 this Commission really observes every nuance of a 4 three-member board and is extremely careful about ex 5 parte communications and that benefits this 6 Commission. I am not favorably -- personally 7 disposed to the idea of two commissioners out of five 8 serving on a subcommittee and having that kind of 9 interface with each other. I understand the benefit 10 of that in many instances, but I just happen, in my 11 fifth year of service on this board, to feel that 12 three members is the right number for this 13 Commission. 14 And having said that, I would ask for discussion 15 and comments from each of you and invite you to 16 disagree or fuss at me, whatever you'd like to do. 17 We'll argue in the public. 18 MR. OLVERA: Well, Mr. Chairman, if I 19 may -- 20 MR. COX: Please. 21 MR. OLVERA: This is perhaps a recent 22 development with respect to myself, but I also quite 23 recently had a lengthy interview with the Sunset 24 Commission telephonically, I should say, and was 25 asked my input on this issue. In very simplistic 0077 1 terms, my response was, if it ain't broke, don't fix 2 it, and that was my opinion on the issue; although, I 3 had no strong objection to the expansion of numbers. 4 My only counterpoint to that was that it was my 5 feeling that this three-member Commission promoted 6 efficiency in rule making, and that it was a well run 7 body, and I had no strong desire to see it change, 8 but that was really the gist of my comments. 9 MR. CLOWE: Thank you. 10 MR. COX: Mr. Chairman, my discussion with 11 the Sunset staff previously was similar to what you 12 described as yours that, you know, there might be 13 advantages to having five members. I had served on a 14 six-member board, and some of the interactions that 15 we had, I thought, on that board was healthy. I, 16 too, have changed my mind in the period of time since 17 that last review. To me, the most important thing 18 that this Commission is about is integrity. And the 19 absolute observation of every nuance of the Open 20 Meetings Law, I think, is an incredibly important 21 part of that integrity. And while I think that 22 volunteer board members who meet on committees of 23 this type that you've described do their best to 24 comply, they're not lawyers, they're not state 25 employees, they're citizens who do this job to help 0078 1 the State of Texas. And I find great comfort in the 2 fact that I can't meet with you unless there's a 3 lawyer around to keep us from discussing things that 4 we shouldn't discuss. And it sounds a little bit 5 like having a babysitter, but it comforts me. 6 MR. CLOWE: Well, thank you for your 7 comments, both of you. And based on that, I'm going 8 to move that the Lottery Commission take the position 9 that we favor this board remaining at a three-person 10 level and not agree with the Sunset recommendation 11 that the board be increased to five individuals for 12 the reasons discussed on the record. And I'd like to 13 add to the comments that have been made that each of 14 us deliberated this individually. There have been no 15 discussions among us. And this is the first time 16 this issue has ever been discussed by the 17 Commissioners, to my knowledge, even in front of the 18 staff -- it's been discussed individually in front of 19 the staff. So I make that motion. Is there a 20 second? 21 MR. OLVERA: Second. 22 MR. CLOWE: All in favor, please say aye. 23 MR. OLVERA: Aye. 24 MR. COX: Aye. 25 MR. CLOWE: Aye. Opposed, no? The vote is 0079 1 three zero. 2 Then, Nelda, will you prepare a document that's 3 suitable for signature so that we can fulfill the 4 promise we made to the Sunset Commission and give 5 them our position? 6 MS. TRAVINO: Absolutely, Mr. Chairman. 7 And two things, just if I could, one just to be sure 8 I understand the direction so that we can formulate 9 this letter for your signature not concurring with 10 the recommendation. And the Sunset staff report 11 makes reference to -- that their recommendation is 12 made on the conclusion that increasing the size would 13 allow the Commission to more -- to operate more 14 effectively and efficiently. And so I think what I 15 understood -- the dialogue that took place is that it 16 is this body's opinion that increasing the size does 17 not necessarily increase the efficiency or the 18 effectiveness of the operation of this Commission. 19 MR. CLOWE: My suggestion is that we not 20 put forth any of our ideas and appear to be even 21 argumentative with the staff's recommendation. My 22 suggestion is that you communicate the vote of the 23 Commissioners, and that we considered it in open 24 conference, and that it's unanimous that we feel this 25 number of three is the most efficient number for this 0080 1 board. And then if there's a need for discussion or 2 further give and take between the staff of the 3 Commission, we can do that at their pleasure. 4 MS. TRAVINO: Very well. The second -- 5 MR. CLOWE: Just make it short and sweet. 6 MS. TRAVINO: Absolutely. We can do that. 7 And the second point, Mr. Chairman, my recollection 8 from the Sunset hearing on one of the questions and 9 some of the discussion that took place was in regards 10 to if the State were to move forward with the 11 authorization of a video lottery system what the 12 opinion of this Commission would be in regards to the 13 size of the Commission. And I don't know if it's the 14 desire of the board to include anything in regards to 15 that in the response to the Sunset Commission. 16 MR. CLOWE: That's another question. 17 MS. TRAVINO: Yes, sir. 18 MR. CLOWE: Now, are we still within the 19 notice, Ridgely? 20 MR. BENNETT: This is the response to the 21 Sunset Commission, and that's noticed as an agenda 22 item. 23 MR. CLOWE: And that question was brought 24 up in the appearance we made before the committee. 25 MR. BENNETT: Before the Sunset committee, 0081 1 exactly. 2 MR. CLOWE: All right. Well, since I was 3 out first on the other one, anybody want to get out 4 first on this one? 5 MR. COX: Mr. Chairman, you're already on 6 record with what you think. 7 MR. CLOWE: I am. 8 MR. COX: So you might tell folks here that 9 didn't hear you. 10 MR. CLOWE: I feel very strongly about 11 this. The issue came up and the question was asked 12 by, I think, Senator Nelson from Flowermound, if the 13 Legislature and the people of Texas authorized an 14 involvement on the part of the Lottery Commission in 15 the development of video lottery terminals within the 16 state, what I felt about a status of the 17 Commissioners. And that's a two-part answer in my 18 opinion. One is, it remain three individuals on the 19 board. And secondly, and of perhaps equal 20 importance, maybe more importance, is that the 21 Commissioners become full-time employees of the 22 Lottery Commission. The reason I feel that way, and 23 Commissioner Cox is better qualified to comment on 24 this than I am, but if the State were to authorize 25 and the people of this state were to approve that 0082 1 kind of gaming operation, then the role of the 2 Commissioners becomes burdened, in my opinion, with 3 larger decisions, and more decisions, and activities 4 that require full-time deliberation and study and a 5 great deal of responsibility. More responsibility. 6 Not that these jobs as we occupy them today are not 7 demanding responsibility, but it is a much enlarged 8 and more serious endeavor when you're regulating that 9 kind of activity. Commissioner Cox and Commissioner 10 Olvera and I do our best as, the term I've used, as 11 citizen soldiers. You know, we are volunteers and we 12 are here as much as we can be to act as Commissioners 13 and oversight the activities of this agency. But I, 14 for one, would want to see these positions full-time, 15 so that Commissioners are dedicated every day of the 16 week to their role in oversighting these kinds of 17 activities. And by that, I did not volunteer myself 18 or anybody else, I want you to know. None of us are 19 asking for that kind of a job, but I was responding 20 to Commissioner -- Senator Nelson's question about 21 how I felt in that -- in that activity. Now, 22 Commissioners, I am on the record, so I'll invite you 23 to have your say. 24 MR. COX: Well, I have looked at the 25 statute that was rolled out by the House, which sets 0083 1 out the responsibility for licensing, regulation and 2 operation of VLTs. And it's my view that, at least 3 initially, that would be absolutely necessary. I 4 think there are too many decisions of various kinds 5 that would have to be made on a very fast track to 6 operate under the current once-a-month meetings that 7 we do. And I think that the way the statute is set 8 up, the board serves as a second level approval for 9 licensing, which I don't believe the State wants to 10 be perfunctory. I believe it wants the kind of 11 oversight and personal review and work on those 12 license applications that you see in the state of 13 Nevada, for instance. And those folks are full-time 14 folks at the Nevada Gaming Control Board, and 15 half-time folks at the Nevada Gaming Commission 16 making those decisions. It might well be that after 17 the initial logjam of licenses is cleared and the 18 systems are in place that there might be -- there 19 should be another look at that as to whether it 20 should continue that way. But I think initially to 21 get the job done and get it done right that's what 22 it's going to take. 23 MR. CLOWE: Let me ask you a question, 24 Commissioner Cox. And I'm really appreciative of 25 this opportunity to discuss this with you, because I 0084 1 need some education on it. A concern that I had 2 about an ongoing responsibility would be where an 3 operation perhaps was alleged to be in violation of 4 some portion of the statute. And the way we function 5 now at this Commission, when that occurs with a 6 licensee or with a retailer, an investigation occurs, 7 an audit occurs and then the staff comes to us 8 proposing action. And we have revoked licenses and 9 we have closed retailer's operations. That -- under 10 the legislation that was proposed, and that's all we 11 can look at as a guideline, you're exactly right, if 12 that occurred in this state and it affected one of 13 the operators, I'll call them for lack of want of a 14 better term, then it might very well come to the 15 Commissioners to make a decision in regard to 16 discipline and some action that could be financially 17 very impactful, could it not? 18 MR. COX: Absolutely. 19 MR. CLOWE: Well, that's where -- you know, 20 I served as Executive Director at the Railroad 21 Commission and worked for three full-time 22 commissioners. And I was drawing on my experience 23 there, seeing how when those types of situations or 24 other matters of great weight came up, they worked 25 hard on that. They had aids, and they studied, and 0085 1 they went into detail. They had their 2 recommendations from staff, but they really made an 3 independent investigation to adjudicate those issues. 4 And it seems like to me there might be an ongoing 5 requirement if discipline was required or if some 6 kind of action might be required. 7 MR. COX: Sure. 8 MR. CLOWE: And those commissioners, I 9 thought, needed to be engaged and have the support to 10 make those independent investigations. 11 MR. COX: Uh-huh. 12 MR. CLOWE: So this is really a question. 13 Do you see that sort of thing possibly occurring and 14 needing to have that kind of attention from the 15 Commissioners? 16 MR. COX: The -- certainly in the initial 17 licensing process of possibly ten or more locations, 18 there's going to be a need for independent review and 19 probably inquiry outside of the record that's brought 20 by staff. So I think initially surely that would be 21 the case. With ten, or 12, or 15 operations, 22 whatever the Legislature ultimately decides there 23 will be, certainly there's the possibility that at 24 any time something could happen and a greater level 25 of involvement might be needed to -- right then. 0086 1 The -- Nevada, I recognize, is not a totally 2 comparable situation, but it's the one I know best so 3 I'll tell you how that would work there. 4 MR. CLOWE: Good. 5 MR. COX: There is a Nevada Gaming Control 6 Board, which are full-time employees, three board 7 members, one accountant, one law enforcement officer, 8 and one businessman who typically is a lawyer. And 9 those people head up the three divisions of the 10 Gaming Control Board, and they are there full-time. 11 That's the first level of recommendation, if you 12 will, review and recommendation. Then that Board 13 makes a recommendation to the Nevada Gaming 14 Commission, which is a half-time board that has it's 15 own staff, not necessarily individual aids, but it 16 has staff and these people are compensated at about 17 half the rate that the board members are compensated 18 and expected to put in a significant number of hours 19 in preparing for their monthly meetings. 20 So it might be that that second step -- that 21 second idea, the Nevada Gaming Commission model might 22 be appropriate once the initial logjam is broken. But 23 I think the Gaming Control Board model is probably 24 more appropriate initially. 25 MR. CLOWE: That's very helpful. 0087 1 Commissioner Olvera, do you have any thoughts on 2 this? 3 MR. OLVERA: Well, first of all, this was 4 not an issue that was presented to me in my interview 5 with the Sunset Committee, but it does -- in many 6 ways, my position has not changed with respect to the 7 first issue with respect to the three-member board 8 question. I think that position remains the same 9 that the three-member board, in my view, promotes 10 efficiency and effectiveness over a five-member board 11 because there's less individuals involved. 12 Now, with respect to the issue of the video 13 lottery terminal issue, once again we are very much 14 on the same page, Commissioner Cox. The best analogy 15 I can use, just intellectually, is Nevada because 16 that's the state that we all reference when it comes 17 to gambling. And I think many arguments could be 18 made that perhaps we are at that point now where it 19 could be strongly argued that full-time commissioners 20 are needed for the Texas Lottery Commission as it 21 stands now, but that there's no doubt in my mind that 22 once the VLT issue goes through, if it is voted upon, 23 then I think that's a no-brainer that we would need 24 full-time commissioners, salaried, that are there on 25 a day-to-day basis overseeing this -- this business, 0088 1 for lack of a better word. And let me preface that, 2 I'm not volunteering for that or trying to terminate 3 this employment that I'm very honored for in any way, 4 but I think that's something obviously we would need 5 to take a look at. 6 MR. CLOWE: Commissioners, I'd like to make 7 a suggestion. There is no issue before the 8 Legislature at this time. The Legislature is not in 9 session. You know, there's nothing for us to react 10 to. We have had a good discussion in the open. We 11 have expressed our opinions. And my view is that it 12 might be presumptuous for us to pass a motion in this 13 meeting. I would like to suggest that, having had 14 this discussion and expressed ourselves, we end this 15 discussion and nothing further be done at this time. 16 MR. COX: That's probably appropriate. 17 MR. CLOWE: So that will be where we'll 18 leave it, Nelda. 19 MS. TRAVINO: Okay. 20 MR. CLOWE: And if there's a question from 21 any individual in the Legislature or anybody else, 22 you can refer to this discussion in the transcript of 23 this meeting. And I think each Commissioner has 24 expressed himself fully. 25 MS. TRAVINO: Very well. We'll proceed in 0089 1 that manner then. 2 MR. CLOWE: Very good. 3 MS. TRAVINO: Thank you very much. 4 MR. CLOWE: Thank you. 5 Next we'll go to item 19, consideration of and 6 possible discussion and/or action on the agency's 7 business plan. 8 Mr. Anger? 9 MR. ANGER: Good morning, Chairman, 10 Commissioners. For the record, my name is Michael 11 Anger, and I'm the Lottery Operations Director. I'm 12 here this morning to give you a brief report on the 13 agency's business plan. 14 Since my last report, we have made significant 15 progress in the development of the agency's business 16 plan. As a follow-up to our day long planning 17 sessions that were conducted in March, Dr. 18 Cadenhead's consulting team has worked with agency 19 management to formalize ideas developed in those 20 meetings. We have identified action plans that 21 address the agency's mission, values and goals for 22 the next three years and are completing the last of 23 our work to formalize those ideas. Dr. Cadenhead's 24 team has also begun work on the structure and content 25 of the business plan. The final long range plan 0090 1 containing the agency's action plans will be 2 incorporated in the business plan upon completion. 3 We are continuing to coordinate with Karen Blizzard, 4 the agency's strategic plan project manager, and 5 ensure that synergy occurs between both the strategic 6 plan and the business plan. 7 And this concludes my report. I'd be glad to 8 answer any questions or receive any comments that you 9 have. 10 MR. CLOWE: Thank you, Michael. Are there 11 any questions? 12 MR. COX: Michael, Professor Huff and Dr. 13 Jarrett (Phonetic) are working on some marketing 14 things. And I know they've completed one phase of -- 15 or rendered one report and are working on the second 16 phase now -- or maybe it's the third phase. How will 17 the work that they have done be incorporated in the 18 strategic plan that Dr. Cadenhead's working with you 19 on? 20 MR. ANGER: What I would say in response to 21 your question, Commissioner, is that that data is 22 coming into the marketing division and is in large 23 part handled -- I've been keeping in contact with Liz 24 Jambor with regard to the development of the business 25 plan and the approach that we have been taking. And 0091 1 the action plans encompass some of the elements that 2 you're talking about that are coming out of those 3 reports that are being developed by Dr. Jarrett and 4 Dr. Huff. So ultimately, that will be included and I 5 would think it would play an even larger role in the 6 agency's marketing plan as we go forward. 7 MR. COX: Now, as I understand the 8 respective completion dates, the work you're doing 9 with Dr. Cadenhead will be completed before the work 10 that Liz and her folks are doing with Professor Huff 11 and Dr. Jarrett. So is it planned that, if 12 appropriate, there will be amendments to the business 13 plan to take into account the recommendations that 14 Professor Huff and Dr. Jarrett will be making? 15 MR. ANGER: Absolutely. Specifically, the 16 Sunset Commission made a recommendation to the agency 17 during the last Legislative session that we develop 18 an agency business plan. And we embarked on that 19 course, and that's continued in the most recent staff 20 report that came forward. And one of the elements of 21 that was a recommendation that we continue to update 22 the business plan after we develop it on an annual 23 basis, and that's exactly what we intend to do. 24 MR. COX: And do we intend that Dr. 25 Cadenhead would be involved in that updating process? 0092 1 MR. ANGER: We would likely go out through 2 a competitive bid process if we decided to seek 3 outside consulting help with that project. So if he 4 shows an interest, certainly he would be one of the 5 bidders we would look at. 6 MR. COX: Okay. 7 MR. CLOWE: Any other questions for 8 Michael? 9 Thank you, Michael. 10 MR. ANGER: Thank you. 11 MR. CLOWE: Next, item number 20, report, 12 possible discussion and/or action on the agency's 13 strategic plan. 14 Ms. Blizzard, good morning. 15 MS. BLIZZARD: Good morning. Good morning, 16 Commissioners. For the record, I'm Karen Blizzard, 17 Publication and Graphics Coordinator for the Texas 18 Lottery Commission. 19 I'm here today to give a report on the 20 development of the agency's strategic plan for 21 2005/2009. Earlier this month the division directors 22 completed their review of the first draft. And I'm 23 continuing to coordinate with Michael Anger to ensure 24 that there is alignment between the strategic plan 25 and the agency's long range and business planning 0093 1 efforts. A second draft of the strategic plan will 2 be made available to the Commission for review in 3 early to mid-June. After we have incorporated your 4 comments, we will request your final sign-off of the 5 strategic plan as an action item at the June 6 Commission meeting. 7 That's all I have today, and I'll be happy to 8 answer any questions. 9 MR. CLOWE: Thank you. Any questions? 10 MR. COX: No questions. 11 MR. CLOWE: Thank you, ma'am. 12 MS. BLIZZARD: Thank you. 13 MR. CLOWE: Next item 21, consideration of 14 and possible discussion and/or action, including 15 proposal on amendments to 16 TAC 401.362 relating to 16 retailer's financial responsibility for lottery 17 tickets received, for winning lottery tickets paid 18 and for lottery related property. 19 Mr. Bennett? 20 MR. BENNETT: Commissioners, I believe 21 Mr. Anger is going to present this item. 22 MR. CLOWE: Very good. 23 MR. ANGER: Commissioners, for the record 24 once again, my name is Michael Anger, and I'm the 25 Lottery Operations Director. And we would like to 0094 1 request to pass on this item at this time. And we 2 would like to go back -- there's some additional 3 information that we would like to take under 4 consideration with regard to this rule. However, if 5 it pleases you, I'd like to give you some brief 6 comments on the current rule, give you a little 7 background of our effort and the approach we are 8 taking with regard to this rule. 9 MR. CLOWE: Commissioners, I've asked for 10 this. Although they're not ready to offer up a rule, 11 I thought some preliminary explanation on Michael's 12 part might be beneficial. 13 MR. ANGER: Thank you. 14 Under the current rule, there are several 15 different retailer financial responsibility topics 16 that you outlined, Chairman, in calling out the 17 agenda item that cover various different financial 18 responsibilities for the retailer. However, my 19 comments will focus on the portion of the rule 20 related to stolen and lost tickets. And this is 21 primarily the portion of the rule that we have been 22 focusing our efforts on and looking at proposing 23 modifications to. And to give you a little 24 background, the current rule with regard to stolen 25 and lost tickets has a couple of requirements with 0095 1 regard to retailers, the first of which is that when 2 they notice a theft or loss at their retail location 3 that they contact local law enforcement, file a 4 police report on the theft or loss at their location 5 and contact the Commission within 24 hours of being 6 aware of the theft or loss at their location to 7 notify us. When they do that, there's certain 8 actions that we take, the first of which is we status 9 the tickets that are reported as stolen or lost in a 10 status so the validations can't occur to limit 11 financial responsibility to the agency and to the 12 State for payment of prizes that may have been 13 involved in a theft or loss. The other thing that 14 takes place is a financial transaction occurs with 15 the retailer's account. And I'll talk about that a 16 little bit in a moment. When we move the tickets 17 into that particular status -- they're basically two 18 categories of tickets that exist at the retailer's 19 location that are full packs of tickets that we refer 20 to as being in a confirmed status, that means the 21 retailer has confirmed receipt of the inventory from 22 our instant ticket warehouse, but they have not made 23 the tickets available for sale. And in that status, 24 the packs of tickets are not in a status where the 25 tickets can be validated. So there's not a risk of 0096 1 payment of prizes on those packs. In the case of 2 those packs, when those packs are reported stolen, we 3 charge the retailer a $25 administrative fee to cover 4 our cost for shipping and the management and the 5 administration of taking care of those transactions. 6 And that's the sole fee charged with regard to those 7 packs. Now, the other category of packs or portions 8 of packs or full packs that have been moved to what 9 we call an activated status where they're out there 10 and they're made available for sale to the public and 11 validations can occur on the prizes that exist in 12 those packs of tickets, and we are exposed to 13 financial responsibility as an agency for those 14 prizes, in the case of those packs, under the current 15 rule, those tickets are automatically settled against 16 the retailer's account when they are reported as 17 stolen, and the retailer is charged for the full face 18 value of those packs. 19 MR. CLOWE: And how much would that be, 20 Michael? 21 MR. ANGER: Well, that varies, 22 Commissioner. It can be anywhere -- for $1 packs of 23 tickets, it's generally $250. There's 250 tickets in 24 the pack. But it can range all the way up to $1,500 25 for our $20 games. So it can be a significant amount 0097 1 for even an individual pack. A lot of times when 2 there's thefts at locations, multiple packs are 3 stolen, so what results is the retailer receives a 4 number of packs of tickets that they report to us and 5 ultimately we settle against their account. The 6 financial transaction related to that occurs against 7 their account immediately and they become immediately 8 financially responsible for all the packs that they 9 report to us as stolen. The impact of that is that 10 the following week when their sweep occurs we sweep 11 them for the sales that they had already, plus all 12 the stolen tickets. So it can be a very substantial 13 amount that their account may be swept for. I'd like 14 to talk a little bit -- that pretty much outlines the 15 basics of the current rule. 16 I'd like to talk to you a little about the 17 complaints that we have heard from retailers with 18 regard to that rule. 19 MR. CLOWE: Just a minute, Michael. 20 MR. ANGER: Yes, sir. 21 MR. CLOWE: Ridgely, are we within the 22 notice to hear comments from retailers and to ask 23 questions and deliberate this with Michael? 24 MR. BENNETT: As it relates to the rule, 25 you are. As long as the comments relate to the rule. 0098 1 MR. CLOWE: All of these relate -- all 2 these comments -- 3 MR. BENNETT: To the current version. 4 MR. CLOWE: -- of this discussion relate to 5 the rule although we are passing. 6 MR. BENNETT: Yes, sir. Although, you're 7 not passing the agenda item. You're not going to 8 propose to publish a rule today. You're getting 9 background information regarding that rule. 10 MR. CLOWE: Great. Thank you. 11 MR. ANGER: Yes, sir. The most common 12 complaint from our retailers is basically based on 13 the financial transaction. And we have heard that 14 from retailers in a number of ways over the years. 15 And that's occurred through regular contact with our 16 retailer services staff who have spoken over the 17 years to probably hundreds of retailers who have been 18 impacted by a theft at their location and worked with 19 us related to the financial impact that occurs. 20 Additionally, we have received information 21 through our retailer town hall meetings that we've 22 had in the past. And basically, most organized 23 forums where we have gotten together and spoken with 24 the retailers, we have received comment from them and 25 input with them with regard to this rule. 0099 1 Additionally, last year the lottery operator, 2 GTECH Corporation, provided us with some information 3 that they had proposed that they felt had an impact 4 on lottery sales. And we looked at some of those 5 recommendations, and one of those was for the agency 6 to take a look at the stolen -- the current stolen 7 ticket rule and the guidelines. They felt like that 8 it had a negative potential impact on sales. And the 9 other thing that's taken place is, is during the last 10 78th Legislative session, during the regular session, 11 Representative Homer proposed two bills that impacted 12 the Commission and were specific to this particular 13 rule. Those were House Bills 1241 and 1242. And 14 both of those addressed and kind of summed up some of 15 the concerns that have been raised by retailers. 16 Those concerns basically boil down into two 17 categories. One that I believe is the concern of the 18 retailers, and the other that I believe is the -- is 19 the agency's concern. The first of which is that the 20 retailers consistently complain that they're charged 21 for the full face value of the tickets, yet we move 22 those tickets that have been stolen from the location 23 into a status where we bear no financial 24 responsibility for the prizes in those packs of 25 tickets. And the argument is that we are not bearing 0100 1 the responsibility, yet we are collecting all of our 2 money. And they are seeking from us that -- the 3 comment that we have heard consistently over the 4 years is they think that's a fairness issue, and 5 they're seeking from us some way for us to mitigate 6 that effort, mitigate those costs associated with 7 those financial transactions against their accounts. 8 MR. CLOWE: Let me ask a question to 9 clarify, Michael. 10 MR. ANGER: Yes, sir. 11 MR. CLOWE: So the roll of tickets is 12 activated and some of them, let's say, are sold and 13 for whatever prizes there are, they're paid. 14 MR. ANGER: Yes, sir. 15 MR. CLOWE: Then the remainder of that roll 16 is stolen, and at that point the theft is reported. 17 We place those remaining tickets in a status where if 18 they're presented for redemption of a prize, they are 19 voided. They are not active. 20 MR. ANGER: That's absolutely correct. 21 MR. CLOWE: So there is no financial risk 22 to the Commission once those tickets are reported 23 stolen and deactivated? 24 MR. ANGER: That's correct. 25 MR. CLOWE: Thank you. 0101 1 MR. ANGER: The second -- 2 MR. OLVERA: But let me follow up on that. 3 MR. ANGER: Yes, sir. 4 MR. OLVERA: There would be a window or a 5 gap between the time that they're reported and the 6 theft, I would imagine. I mean, it's not 7 instantaneous that there would be no risk by the 8 Commission. 9 MR. ANGER: Commissioner, that's -- that's 10 correct. It's not uncommon for that to be the case. 11 There's various different types of robberies and a 12 theft that occur that get reported to the Commission, 13 anywhere from somebody coming into the store when the 14 clerk is present and stealing tickets right in their 15 presence and running out the door. You know, maybe 16 they tear some tickets off of the display stand, they 17 reach behind the counter, you know, or something to 18 that effect in which case they would know right away 19 about the theft. But certainly there are thefts and 20 many of which occur overnight maybe when a business 21 is closed and that retailer may not find out about 22 the theft until they arrive to open the business in 23 the morning, so you're absolutely correct about that. 24 And I think some of the elements of what we are 25 looking at may address the issue you've raised there. 0102 1 MR. CLOWE: Let's just sharpen that point 2 just a little bit. 3 MR. ANGER: Yes, sir. 4 MR. CLOWE: The retailer would have the 5 responsibility for the tickets and anything that 6 happens prior to the report of the theft, in their 7 argument, the way you said they stated it to the 8 Commission. 9 MR. ANGER: Yes, sir. 10 MR. CLOWE: When they do report that, that 11 ends the activity of the ticket as far as the 12 Commission is concerned. Am I -- it's not like 13 reporting the theft of a credit card. You're 14 responsible for these tickets and we will honor them 15 up until the time the theft is reported. 16 MR. ANGER: Yes, sir, that's correct. 17 MR. CLOWE: If a credit card is stolen and 18 used illegally, you're not held responsible for those 19 charges even though you hadn't reported the card 20 prior to the time it was used. 21 MR. ANGER: Yes, sir. 22 MR. CLOWE: Okay. Does that confuse or 23 does that help? I'm thinking of these -- 24 MR. OLVERA: I don't want to get into 25 credit card law. 0103 1 MR. CLOWE: We may have had painful 2 experiences with that, but I'm just trying to think 3 of these tickets as money, because when they're 4 activated, they really take on the status of 5 currency. It's a promise to pay on the behalf of the 6 State. 7 MR. ANGER: Yes, sir. 8 MR. CLOWE: But when it is reported as a 9 theft, that promise is null and void. 10 MR. ANGER: That's absolutely correct. 11 MR. CLOWE: Are we on track so far? 12 MR. COX: Yes, sir. 13 MR. CLOWE: Okay. 14 MR. ANGER: The second item that I wanted 15 to raise, and this comes from staff reports and our 16 experience in dealing with retailers that suffer such 17 losses in their location is that the financial impact 18 as I talked about earlier of these transactions can 19 be significant, and it can take a -- several forms 20 with regard to our retailers. The most significant 21 of which is probably the most severe situation where 22 the financial impact of that loss is so great that 23 the retailer cannot make their sweep payment during 24 the next weekly sweep on their account, which results 25 in a nonsufficient funds transaction, subsequent 0104 1 suspension of the license, and potentially revocation 2 if the retailer is unable to pay for the financial 3 responsibility with regard to those tickets. And 4 ultimately that results in loss of sales at those 5 locations, but there are also varying degrees of 6 actions that take place. What we hear from retailers 7 that do stay on with us and do make the payments for 8 those lost tickets is that they may have carried a 9 wide range of inventory, instant ticket inventory at 10 their location. They may have made 20 games 11 available to the public. And if it was a theft as 12 Commissioner Olvera related in that may occur at 13 night where somebody doesn't know about it, somebody 14 may have gotten away with 20 packs of tickets which 15 creates a huge financial transaction. And their 16 reaction to that is, I'm not going to bear that risk 17 as a business owner any longer. I may continue to 18 carry your product, and I may make that business 19 decision, but I may decide to shrink the amount of 20 your inventory that I'm going to make available to 21 the public. It also may sour that retailer's 22 enthusiasm for the promotion and sale of our products 23 in those stores. And we are working up some 24 information which we'll make available to you that I 25 believe supports that, that we see a decline in 0105 1 lottery sales in locations compared -- the period 2 before a theft and the period following a theft, 3 there's an immediate relationship that occurs there 4 and exists. And I think that on that part, that's 5 the concern of the agency. 6 The new rule and the language that we are 7 working on and the issues that we are trying to 8 address, I think, go to the heart of that matter for 9 both the agency and for the retail licensees and I 10 think that address a number of those issues and 11 concerns. And just to give you a brief overview, you 12 know, staff being aware of those issues have 13 evaluated a number of options that would change the 14 current rule and take into account this financial 15 impact that occurs at these locations. The new rules 16 continue to place -- and I think this is an important 17 point, continue to place financial responsibility for 18 loss on retailer licensee locations that have instant 19 ticket control -- of the tickets in their control. 20 However, the rule changes that exposure on the part 21 of the retailer from all tickets involved in a theft 22 to those tickets where the Commission is forced to 23 bear financial responsibility for the prizes. And 24 Chairman, that goes to your point that we are going 25 to continue to honor prizes that are out there and on 0106 1 tickets that are made available for sale in an active 2 status where validations can occur up until the point 3 that we receive a report from the retailer that that 4 theft occurs. 5 MR. CLOWE: I think it's really 6 Commissioner Olvera's point and it's a good one. 7 MR. ANGER: Yes. And essentially, we can't 8 be put in the situation of bearing the responsibility 9 that the retailer may fail to report a theft or loss 10 at their location for a day, weeks, because quite 11 frankly, we bear that financial responsibility as 12 long as those tickets are out there and made 13 available for sale. So while the retailer maintains 14 financial responsibility, and I honestly believe that 15 they need to maintain financial responsibility for 16 that inventory, we found a way that we believe would 17 allow us to lessen the financial burden that may 18 result from a theft or event that may be out of the 19 control of a retail licensee. And specifically where 20 the previous rule would change, they would continue 21 to report just as they did under the previous rule to 22 the local law enforcement. They would need to report 23 to us within 24 hours and file a stolen ticket 24 report, but where the change would occur is that we 25 would work with them on identifying the ranges of 0107 1 tickets in the pack when they report a pack of 2 tickets or multiple packs of tickets as stolen 3 that -- where validations have not occurred. And 4 those are the tickets and those are the only tickets 5 that we would move into a stolen status. And those 6 tickets that are moved into a stolen status, though, 7 would no longer be charged to the retailer. Those 8 tickets would be written off, if you will, against 9 the charge that would be associated with them. So if 10 I was a retailer and I had a pack of 250 tickets, and 11 I reported 100 of the 250 tickets as stolen, we are 12 going to be implementing some changes -- if this rule 13 is approved, we would implement system changes that 14 would allow us to identify whether validations had 15 occurred in that range of tickets. And if they had, 16 the hotline staff that was working with the retailer 17 to take in the stolen ticket report would work with 18 them to identify where the legitimate range of 19 tickets is that could be statused in that stolen 20 status. So I might report 100 through 250 as a 21 stolen range of tickets, but if there were 22 validations all the way up to ticket 125, the only 23 range of tickets that could be statused as stolen 24 would be tickets 126 through 250. And that's the 25 protection, one of the retailer, but also the 0108 1 protection for the agency, that we are insuring that 2 we are getting good and proper stolen ticket ranges 3 in the system and that we are not bearing any 4 financial responsibility for tickets that could be 5 out there and available for cashing. 6 With regard to the full packs of tickets, which 7 are confirmed tickets, the rule would stay as it is 8 now. We would continue to charge the $25 fee for 9 those packs of tickets that are not in a cashable 10 status and that we won't bear that financial risk for 11 prizes just to recoup the cost of our administrative 12 fees. 13 Just to conclude with my comments on this, in 14 looking at this and trying to identify some changes 15 for the rule, we believe that it addresses three 16 elements really. One, it addresses the most 17 significant complaint by retailers about our current 18 rule, that it encourages continued strong sales at 19 licensed retail locations that experience such a 20 loss, and that it also encourages prompt reporting of 21 these losses by the retailer. 22 And the last point I'll leave you with is that 23 under the terms of the current rule, we encourage 24 retailers to report thefts and losses immediately to 25 us so we can immediately move tickets into a stolen 0109 1 status. And the goal there obviously at its core is 2 the security and integrity of the Lottery. People 3 that steal lottery tickets, we don't want them out 4 there being able to cash and redeem prizes and 5 collect money for those losses, so we try to 6 encourage the retailers to quickly get out and report 7 to us tickets that are stolen so we can move them 8 into a status where those types of activities don't 9 occur. The issue is that the current rule provides a 10 financial disincentive for retailers to follow that 11 guideline and report promptly. If a retailer is 12 aware that all those tickets that are involved in the 13 theft will be settled against his accounts and he 14 chooses not to report to the Commission, those 15 tickets would settle against his account over time. 16 And what I mean is they -- we move tickets into an 17 activated status and make them available for sale, 18 but we don't charge the retailer until one of two 19 things occurs; until 45 days pass or 70 percent of 20 the low tier prizes, prizes under $25, in that pack 21 of tickets are validated. And if a retailer doesn't 22 report, then he at least delays that financial 23 responsibility and doesn't take the big financial 24 hit. So the current rule, in a way, kind of works 25 counter to our goal of quickly moving to move those 0110 1 tickets into a stolen status. 2 MR. CLOWE: It's called a floater. 3 MR. ANGER: Yes, sir. Yes, sir. And that 4 concludes my comments. I would be glad to answer any 5 questions that you have. 6 MR. CLOWE: I have a question. What do the 7 other big lottery states do in this regard? 8 MR. ANGER: We'll put together some 9 information for you and get together a report for you 10 as far as the other states are concerned. I don't 11 have that information in front of me at this time. 12 MR. CLOWE: And how many retailers did you 13 say, 100, that -- did I misunderstand your comment, 14 the number of retailers that have experienced thefts 15 and -- 16 MR. ANGER: I made the comment that over 17 the years that we have spoken to hundreds of 18 retailers -- 19 MR. CLOWE: Hundreds. 20 MR. ANGER: -- that have been impacted by 21 these types of thefts, yes, sir. 22 MR. CLOWE: I wasn't quite sure I 23 understood you, and I'm glad I asked for 24 clarification. You don't have the number? 25 MR. ANGER: No, sir, not at this time. 0111 1 MR. CLOWE: I'd just like to say I 2 appreciate your explanation. I think I understand 3 this better than I did before you started. It's a 4 very clear explanation. And the Commissioners are 5 going to be required to make a decision on this 6 assuming you put up a rule and they adopt it for 7 publication. And I think this is helpful to us. 8 Now, Reagan? 9 MR. GREER: The segue was great, because it 10 was on the hundreds figure, we picked up on the same 11 thing. I just wanted to give you from my perspective 12 the fact that since I've been here and attended 13 retailer forums all around the state, this is an 14 issue that the retailer is in my face on. And they 15 are expressing their opinion very loudly that they 16 want us to re-look at it. Ed and -- Ed Rogers and 17 Mike have done a great job at putting that together. 18 It was a great scenario. I get a lot of letters 19 about this. I had a personal experience when I went 20 down to Houston a few months ago to give somebody -- 21 (Interrupted by banging noise.) 22 MR. GREER: -- a retail bonus check for 23 half a million dollars. I always go out and visit 24 with the retailer to get input and visit with them. 25 And coincidentally, about three days before that, a 0112 1 guy -- a thief had come in -- and a lot of the places 2 have the tickets like stacked up, you know, out front 3 where you can see them, and came in and just took the 4 whole thing off the counter and ran out the door. 5 And this retailer was quickly moving into an 6 environment of, you know, expressing his opinion on 7 this issue, because this is about $3,300 that then we 8 swept him for. And for this guy -- it was a liquor 9 store. It was a small operation. I mean, he was -- 10 he was pleading with me, you know, to look into this 11 issue more. So I thought if I could put a face to 12 that and let you know that I have talked to people 13 individually, and wanted to thank you guys for what 14 you've done on this. It's a good issue and look 15 forward to coming to some resolution on it. 16 MR. CLOWE: Very good. 17 MR. ANGER: Thank you. 18 MR. CLOWE: Thank you. Next item 22, 19 consideration of and possible discussion and/or 20 action on the advertising services contracts. 21 MR. BENNETT: And Commissioners, again, for 22 the record, my name is Ridgely Bennett. This agenda 23 item relates to both the DDB Dallas general market 24 advertising services contract and The King Group 25 minority market advertising services contract. Both 0113 1 contracts have an initial term that end in October. 2 And both contracts have options to renew two one-year 3 -- two one-year periods. And staff recommends that 4 the Commission exercise its option to renew each of 5 the contracts for a one-year period. 6 MR. CLOWE: And is this an item -- this 7 type of item that the Commission has taken action on 8 in the past? 9 MR. BENNETT: It is. This is one of the 10 major contracts that the Commission has expressed an 11 interest on in being brought up to speed on when the 12 term of the contract is over and any renewals are 13 taken -- and issues regarding the contract. 14 MR. CLOWE: And is there a recommendation, 15 Reagan, that you want to make specifically in regard 16 to this? 17 MR. GREER: Yes, sir. And I think Steve 18 was going to talk to it as well. And one of his 19 charges was to look into this a little bit further, 20 but from the staff's perspective, they've been 21 pleased with the product that has come out. They've 22 been pleased with the quality of the work, the 23 responsiveness when we have issues or something like 24 that. We are still working on Commissioner Cox's 25 issue that you brought up a moment ago which is a 0114 1 very valid issue in reference to where's the best 2 place, you know, for these dollars to go. And we'll 3 continue to monitor that, but staff's recommendation 4 is that we continue and support what Ridgely was 5 speaking to in reference to another year. 6 MR. CLOWE: Questions? 7 MR. COX: Mr. Chairman, DDB Dallas has not 8 been responsive to my inquiries to anywhere near the 9 degree I think they should have been. And I'm 10 prepared to go with the staff's recommendation, but 11 they need to pick it up. 12 MR. CLOWE: Reagan, do you have a response 13 to that comment? 14 MR. GREER: I agree. And that was one of 15 the things that we have brought up -- it's been going 16 on, really, for months, which brought the study 17 forward; they got an independent group out there, so 18 I'm withholding a full judgment call until I see what 19 they come up with. And certainly that will have an 20 impact as we move forward with our relationship with 21 them. 22 MR. BENNETT: And Commissioner, that 23 contract does contain a provision where we can 24 terminate that contract at the will of the Commission 25 upon 30-days written notice. So even if you do agree 0115 1 to extend their contract for a year, if you're not 2 pleased with their service, you can take advantage of 3 that cancellation provision. 4 MR. CLOWE: Thank you for that information. 5 And I think Commissioner Cox now has expressed his 6 opinion that -- 7 MR. OLVERA: Well, and my question is when 8 is the deadline in terms of the notification for the 9 extension? 10 MR. BENNETT: The deadline is -- we don't 11 have to give any notification prior to, just -- we 12 just have to let the -- it's our sole option to 13 extend the contract. I believe October 7th is the 14 date--I could be wrong on that--on the DDB contract. 15 It's sometime at the beginning of October. The issue 16 would be -- we would have to go through a procurement 17 procedure in order to bring on a different vendor. 18 And that process would take several months to go 19 through, so now is the time to make the final 20 decision on whether or not we want to go into -- 21 issue an RFP for those services or renew the 22 contract. 23 MR. CLOWE: And Ridgely -- 24 I didn't mean to step in front of you there. 25 MR. OLVERA: No, no. 0116 1 MR. CLOWE: I think this is what 2 Commissioner Cox mentioned earlier. You know, when 3 you present us with something like this, it's a fait 4 compli. You say it's expiring in X number of months, 5 but it's too late to take bids. And you put us in a 6 bad position -- not you personally, but the staff 7 puts us in a bad position--better said that way--and 8 that doesn't give us what we really want, I think, as 9 oversight to know ahead of time. And Commissioner 10 Cox's comment is extremely important. When a 11 commissioner says he's not satisfied with a vendor, 12 you know, that's -- that's serious business in my 13 opinion. 14 MR. BENNETT: We fully understand that, 15 Commissioner. We did bring this item to your 16 attention a couple of months ago. And we promised to 17 bring it back to your attention again. And if you do 18 decide that you would like to issue an RFP, there is 19 still time to do that. It would have to be on an 20 expedited basis, but there would still be time to do 21 that. 22 MR. CLOWE: Okay. Well, and my comment 23 goes to giving us heads up very timely so that we 24 don't put you an an expedited position if a 25 commissioner has a reason to feel the way 0117 1 Commissioner Cox does about this one contract. 2 MR. BENNETT: Certainly. 3 MR. CLOWE: And I think that's the 4 oversight that is incumbent on us as board members to 5 exercise. 6 MR. BENNETT: Certainly. 7 MR. CLOWE: And my remarks are not directed 8 to you personally. You understand that? 9 MR. BENNETT: I certainly understand -- 10 MR. CLOWE: Anymore than yours are to me 11 personally. 12 Commissioner Cox, what's your -- what's your 13 pleasure? 14 MR. COX: I think we ought to go ahead and 15 continue these contracts for another year subject to 16 the -- these DDB folks getting it right, because 17 they've had plenty of time to get it right. It needs 18 to be right. 19 MR. CLOWE: And would you like to -- do you 20 want to have a formal review of their performance in 21 30 or 60 or 90 days? 22 MR. COX: Well, I -- staff has invited me 23 to the presentation they're going to make on their 24 report on the effectiveness of advertising. And I 25 understand that Professor Huff and Dr. Jarrett have 0118 1 also been invited. And I think that after that 2 meeting I'll have a better basis for an opinion about 3 whether they are taking us seriously or whether 4 they're continuing to feed us Pablum. 5 MR. CLOWE: And you'll comment back to the 6 other two Commissioners when you're ready? 7 MR. COX: Yes, sir. 8 MR. CLOWE: Okay. Anything, Commissioner 9 Olvera? 10 MR. OLVERA: No. 11 MR. CLOWE: So then a motion is what you're 12 asking for, Ridgely, I think, on these two contract 13 renewals? 14 MR. BENNETT: That's correct. To give the 15 executive director authority to exercise the 16 Commission's option to renew the two contracts for a 17 one-year period. 18 MR. CLOWE: So moved. 19 MR. COX: Second. 20 MR. CLOWE: All in favor, please say aye. 21 MR. OLVERA: Aye. 22 MR. COX: Aye. 23 MR. CLOWE: Aye. Opposed, no? The vote is 24 three zero in favor. 25 Next item is 23, consideration of and possible 0119 1 discussion and/or action on the lottery operator 2 contract including approval of an amendment to the 3 lottery operator contract and/or whether the 4 negotiation of the lottery operator's contract in an 5 open meeting would have a detrimental effect on the 6 Commission's position in negotiations of the lottery 7 operator contract. 8 Commissioners, by way of explanation, and 9 Ridgely, you correct me if I'm wrong, the Commission 10 is enabled by statute to consider its contract with 11 the lottery operator in executive session. It 12 requires a motion and action and we are authorized to 13 go down that path if we so choose. 14 MR. BENNETT: Right. 15 MR. CLOWE: It's been the practice of the 16 Commission, I think I can say generally, for 17 modifications of the contract to want to discuss 18 these issues in open session and not go into 19 executive session. 20 How far can we go, Ridgely, with an 21 identification of what this matter is and then let 22 the Commissioners having that knowledge make a 23 decision on where they want to deal with this? 24 MR. BENNETT: I'd be happy to give you a 25 brief overview of why this item has been placed on 0120 1 the agenda. This item relates to the Player Connect 2 system. Player Connect was the player registration 3 application provided by GTECH under the lottery 4 operations and services contract. The Texas Lottery 5 has instructed GTECH to turn off that system. And it 6 is currently turned off. Information that was 7 available to lottery players under Player Connect is 8 currently available on the Texas Lottery's web site. 9 And the Texas Lottery is currently reviewing -- staff 10 of the Texas Lottery, its options regarding Player 11 Connect and how those options impact the lottery 12 operator contract. I do not believe that staff has 13 an amendment prepared today to bring before you, but 14 staff wanted to let you know that this issue has 15 occurred. We are in consultation with GTECH, and 16 it's our intention to bring either an amendment to 17 the contract or some type of resolution to this issue 18 before the Commission at a later Commission date. 19 MR. CLOWE: Commissioners, I think we need 20 some discussion of this item. What's your pleasure? 21 Do you want to go forward in open session or consider 22 moving into executive session? 23 MR. COX: Let the light shine in. 24 MR. OLVERA: I have no objection. 25 MR. CLOWE: Good. I feel the same way. I 0121 1 think we'd like to hear -- and I'm not sure who's the 2 individual -- we'd like to hear why this Player 3 Connect feature is disconnected and why it's not 4 functioning. And that might be preceded by a full 5 explanation of what it was when it was up and running 6 properly. 7 MR. BENNETT: I believe Mr. Fernandez -- is 8 he in the audience? 9 MR. GREER: The Deputy Executive Director 10 Gary Grief and Mike Fernandez have been the point on 11 this. And Mike will give a good review of what's 12 going on -- 13 MR. CLOWE: Good morning, Mike. How are 14 you doing? 15 MR. FERNANDEZ: Good morning, Mr. Chairman, 16 Commissioners. For the record, my name is Mike 17 Fernandez. I'm the Director of Technology. Player 18 Connect, I think simply stated, was a registration 19 feature that any citizen could sign up for and 20 receive numbers after the draw. And it's my 21 understanding that those numbers would be -- we were 22 presenting those numbers to them. So they would sign 23 up, give you an Email address, and twice a week we 24 would ship to them 20 numbers. What happened was the 25 company that provided the software to GTECH was 0122 1 procured by another computer company. And when this 2 computer company acquired that software, they chose 3 to no longer support it. Okay. So then what 4 occurred subsequently to that is that as operating 5 systems changes were put on or as any other changes 6 were put on the system, that particular software 7 would encounter problems. So what we were seeing 8 over the last number of months is that as things 9 would occur, we had no go to. We had no support. 10 And when I say "we" I'm talking about -- I'm talking 11 about GTECH. So consequently, over these 90 days or 12 120 days, we continued to encounter problems. And so 13 what would happen is that when you would try to 14 register, then you would be unable to register or you 15 might get registered but then you wouldn't get an 16 Email. So we were -- we were receiving calls 17 continually about that into Customer Service. And we 18 kept both the Director and the Deputy Director 19 apprised of that, as well as the Marketing Director 20 was on board. His folks are very involved in 21 gleaning that information. So it was the collective 22 wisdom, I think, of the organization, as opposed to 23 having a function available for the public that 24 wasn't truly functioning as it should to terminate 25 that, to turn that off, which we did, I believe, it 0123 1 was a week ago. What we have -- we have opened a 2 dialogue with GTECH at looking at other services, if 3 you will, that would then come into play that perhaps 4 would add other functions to the organization of like 5 value. So that dialogue is ongoing and had 6 conversations with Steve Martin, our Marketing 7 Director, and certainly with our Executive Director 8 and Deputy Executive Director. What we'd like to do 9 is to go through that process. And once that's 10 completed, then come back and certainly make a 11 recommendation to Reagan, Gary and Steve about 12 options. And then once they identify which they 13 believe is best, then we would present that to the 14 Commission for your consideration. 15 MR. CLOWE: Questions? 16 MR. COX: No, sir. 17 MR. CLOWE: What action are you asking from 18 the Commission, Ridgely? 19 MR. BENNETT: Today we are not asking for 20 any action. When we noticed this item up, we were 21 not certain whether or not we would be in a position 22 to offer a contract amendment or not. Staff 23 currently is not, so we'd like to pass this item. 24 MR. CLOWE: Okay. But you've turned it 25 off. You've made a judgment call, because it wasn't 0124 1 functioning -- 2 MR. FERNANDEZ: Absolutely. 3 MR. CLOWE: -- so you made that decision. 4 And now you're negotiating with GTECH for the quid 5 pro quo. 6 MR. FERNANDEZ: Yes, sir. 7 MR. CLOWE: If there are no questions, 8 Commissioners? 9 MR. OLVERA: (Shakes head.) 10 MR. COX: (Nods head.) 11 MR. CLOWE: Thank you, Mike. 12 Commissioners, with your permission, I'd like for us 13 to complete the open meeting agenda prior to going 14 into executive section. So then we'll move to item 15 26, consideration of the status and possible entry of 16 orders in dockets identified by the letters "A" 17 through "R". 18 Mr. Bennett? 19 MR. BENNETT: Thank you, Commissioners. 20 Items "A" through "P" are the standard revocations 21 for retailers not possessing sufficient funds for our 22 sweeps. And we'd like you to take those all up at 23 one time, if it's your desire. 24 MR. CLOWE: Is there anything unusual about 25 any of these or are they all simply insufficient 0125 1 funds? 2 MR. BENNETT: They're all the standard 3 insufficient funds. There's nothing unusual about 4 them. 5 MR. CLOWE: And the request is for a motion 6 to revoke their permits? 7 MR. BENNETT: That's correct. 8 MR. CLOWE: So moved. 9 MR. COX: Second. 10 MR. CLOWE: All in favor, please say aye. 11 MR. OLVERA: Aye. 12 MR. COX: Aye. 13 MR. CLOWE: Aye. Opposed, no? The vote is 14 three zero in favor. Now items identified by the 15 letters "Q" and "R". 16 MR. BENNETT: "Q" and "R" are Bingo agreed 17 orders that we would ask you to look in. I believe 18 Mr. Oldham is available if you have any questions 19 about these. 20 MR. ATKINS: Commissioners, if I may, both 21 of these are the results of audit performed by the 22 Division. And the staff has negotiated with these 23 agreed orders with the two organizations that are 24 involved. 25 MR. CLOWE: We can write and listen at the 0126 1 same time. 2 MR. OLDHAM: Excellent. Thank you, 3 Commissioners. For the record, again my name is 4 Kevin Oldham, Assistant General Counsel. We have 5 before you today two memorandums of agreement, 6 consent orders regarding audit findings. And Billy 7 correctly observed that the organizations agreed to 8 these remedies for noncompliance with issues 9 identified based on those audit findings. The agreed 10 term -- the terms that are agreed to are pretty much 11 the same with one exception. They require 12 redeposited funds that was used for some purpose 13 other than what was provided the use of Bingo funds 14 for -- it either was not an expense provided under 15 the statute or a charitable use of proceeds. Under 16 item "Q," that agreement also contains an 17 administrative penalty amount of $882.26. Under item 18 "R," there was no administrative penalty amount. And 19 the reason for the difference between those two in 20 the case under item "R," the Red Men Tribe 21, that 21 organization had a change in leadership, and it was 22 the previous administration of that organization that 23 had run into some compliance issues, and there were 24 some other mitigating factors. And that was not the 25 case with the Trinity Lodge Group under item "Q". 0127 1 MR. CLOWE: And Billy, do you have anything 2 to add? 3 MR. ATKINS: No, sir. We would recommend 4 the Commission adopt those orders. 5 MR. CLOWE: Any questions? 6 So moved. 7 MR. COX: Second. 8 MR. CLOWE: All in favor, please say aye. 9 MR. OLVERA: Aye. 10 MR. COX: Aye. 11 MR. CLOWE: Aye. Opposed, no? The vote is 12 three zero in favor. Thank you, Kevin. 13 MR. OLDHAM: Thank you. 14 MR. CLOWE: I'm going to call on you in 15 just a minute, Reagan, as soon as we complete signing 16 the last orders. 17 MR. GREER: Okay. Thank you. 18 MR. CLOWE: Next we'll take up item 27, 19 report by the Executive Director and/or possible 20 discussion and/or action on the agency's operational 21 status, FTE status, and retailer forums. 22 Mr. Greer? 23 MR. GREER: Thank you, Chairman and 24 Commissioners. A busy month last month. There's a 25 number of issues that I wanted to reinforce. One is 0128 1 the Lotto Texas rolled last night to 70 million, and 2 the fact that we did have 109,178 winning tickets. 3 That was exciting. Mega Millions is at 42, and so we 4 are experiencing a lot of jackpot fever around here 5 right now and that's worth noting. We were extremely 6 busy in the last 30 days in reference to the special 7 session. Nelda touched on many of these issues. The 8 Lottery has been acting as a resource, as you're 9 aware, to the Legislature and the leadership of our 10 State in reference to the video lottery issue. We 11 testified at a House Select Committee hearing on 12 April 26th. We testified at a Senate Finance 13 Committee meeting on April 27th, and we'll be 14 appearing, as was mentioned earlier, at the House 15 Licensing Committee meeting on June 1st. 16 I'm pleased to remind you that our 12th 17 anniversary is on tap. It is May 29th. There is 18 some impressive numbers that I wanted to share with 19 you in reference to that anniversary. Since the 20 lottery started, our total sales have been $34.8 21 billion. The total prize expense to players has been 22 $19.5 billion. Our prize payout percentage has been 23 56.2 overall. Commissions that have been paid to 24 retailers, 1.7 billion. There's been a one percent 25 bonus as a part of that process, as well, that's been 0129 1 57.3 million. 233.5 million in unclaimed prizes 2 transferred to the State. General revenue to the 3 State, because when it started it specifically did 4 not go into the Foundation School Fund, was 4.9 5 billion. And since the Foundation School Fund, 6 another 6.2 billion. So the total transferred to the 7 State by the Texas Lottery Commission to date is 8 $11.4 billion. We have a ticket celebrating this 9 event, a instant ticket. (Indicating.) And I have a 10 copy of that for you. And that ticket has gone over 11 real well. It's a $20 ticket. We started selling it 12 at the end of April and it's being very well received 13 by the general playing public. 14 MR. COX: Reagan, mine is void. 15 MR. GREER: Yours are all void, sir. That 16 is just a sample. 17 Total Texas Lottery sales overall continue to be 18 above last year as Lee touched on a moment ago. 19 MR. CLOWE: What's the value of this 20 ticket, $20? 21 MR. GREER: It's a $20 ticket. The sales 22 are tracking right now -- that's a good looking 23 ticket, isn't it? 24 MR. CLOWE: It's a big ticket. 25 MR. GREER: Big ticket. The total lottery 0130 1 sales overall are staying above last year's, 2 five-and-a-half percent right now. As of May 22nd, 3 total sales of the lottery products overall were 4 tracking well in many of our different games. The 5 fiscal year FY '04 sales at 2.4 billion is 5.5, as I 6 mentioned above. But I also thought it would be 7 specifically worth mentioning that fiscal year weekly 8 sales, the average of 64 million, is a figure that I 9 touched on earlier that I want to revisit, because 10 that, in the big picture, has been a really exciting 11 thing when you look at our overall sales rising. 12 The Latin lotto scam is still out there. I 13 wanted you to be aware of that. We were part of the 14 scenario that assisted in hits recently in Pasadena 15 on April the 28th. The loss on that continues to be 16 staggering. Across the board it's been over $3.9 17 million. Texans continue to fall prey to this thing, 18 and we continue to work really hard on it. Another 19 hit in LaPorte for 3,000, so I wanted you to know 20 that we continue to be focused on the Latin lotto 21 scam and will continue to keep you apprised of our 22 progress in that area. Friday, June the 4th will be 23 the last day on the Texas Two Step ticket. I wanted 24 to put it out on the record, a ticket was sold for a 25 drawing held on December 9th, '03. It's worth 0131 1 $325,000 before taxes. We are hoping somebody's 2 going to step up by 5:00 o'clock on that day, because 3 that's a big chunk of change. And the Corpus Christi 4 claims center is ready and willing and able to cut 5 the check for that winner if they would step forward. 6 It was sold at a Circle K in the Ingleside area at 7 2882 Main Street, and wanted to get it out there. 8 Hopefully somebody will step up by then, but if they 9 don't, we will be putting that in the unclaimed prize 10 fund. The retailer did receive his 3250 bonus on the 11 Texas Two Step ticket. And that issue is one that we 12 would like to continue to let the press be aware of 13 and wanted to let you be aware of the fact that a 14 pretty big ticket is about to expire. 15 On the speaking circuit, wanted to let you know 16 that I have been out and I spoke to the Alamo Kiwanis 17 club on April 15th, the Northeast Austin Rotary Club 18 on April 28th, spoke at a GTECH sales meeting on May 19 7th -- 20 MR. CLOWE: I won $400. He's going to 21 scratch now. 22 MR. GREER: I defer to legal on that. 23 MR. COX: Cut this void right off the top. 24 MR. BENNETT: Those tickets will not 25 validate. 0132 1 MR. GREER: Mike Anger's back there, oh, 2 man. 3 MR. OLVERA: We haven't played the lottery 4 in a long time. 5 MR. CLOWE: Joe, you better get up here. 6 Pardon us, Reagan. We are having a little fun with 7 your tickets. 8 MR. GREER: That's great. I also did not 9 mention earlier, but we also were there in attendance 10 at the Sunset hearing, and I did provide testimony 11 May the 18th for that event. 12 Catherine Melvin is out there, and I wanted to 13 let you know that this is internal audit week and 14 appreciation week. And they had a nice open house 15 the other day. It was well attended by staff. 16 Catherine continues to be a great asset to all of us 17 here and just want to acknowledge her and the 18 internal auditors for the great work that they do for 19 the organization as a whole. 20 Our theme this month is learning to become a 21 butterfly from a caterpillar. We have had a lot of 22 fun with that and will continue to be a scenario. 23 Each month we have a theme and focus on that 24 throughout out staff meetings. 25 Other than that, thank you again for the 0133 1 privilege of being the Executive Director of the 2 Texas Lottery. I look forward to continuing to bring 3 you further reports about the way that the year is 4 shaping up, which is a very positive thing. 5 MR. CLOWE: Thank you, Reagan. And I want 6 to acknowledge under your report that Mr. Bennett is 7 here sitting in for Ms. Kiplin, doing an admirable 8 job. 9 MR. BENNETT: Thank you. 10 MR. CLOWE: And Mr. Anger and Ms. Blizzard 11 stood in admirably in part for Mr. Grief, who is on 12 vacation. We appreciate everyone stepping up and the 13 team results. 14 MR. GREER: Absolutely. 15 MR. CLOWE: Commissioners, any questions of 16 Reagan? 17 MR. COX: I have one question. 18 MR. CLOWE: Yes, sir. 19 MR. COX: Reagan, maybe last week or the 20 week before, I got a one-page report in my weekly 21 packet that set out the sales for all the years that 22 the lottery has been in existence. 23 MR. GREER: Yes, sir. 24 MR. COX: Do you happen to have that page? 25 Yeah, thank you. 0134 1 MR. GREER: That was something that I asked 2 Lee to put together to give an overview. And we have 3 provided that to members of the Legislature. There 4 was some question as to where the money was going. 5 And I put it in your packet, as well, so that you all 6 would be aware of it. We'll continue to update that 7 on a monthly basis so that when somebody asks, where 8 is the money going, how much is it, we have a 9 document readily available to provide to them. Those 10 figures that I quoted you earlier are based on that 11 sheet, sir. 12 MR. COX: Okay. Well, you know, I have had 13 the impression that we had recovered from the decline 14 in sales that resulted from the limits placed, I 15 think, on the amount we could return on instant 16 tickets. But when I see this, I see that -- if I 17 read this right, in '97, our sales were $3.7 billion. 18 MR. GREER: Yes, sir. 19 MR. COX: Which with a smaller population 20 was a nice per capita number. And that we are now at 21 three one, and we -- our increases have been nice, 22 but we are $600 million short of where our sales were 23 in 1997. 24 MR. GREER: Yes, sir. 25 MR. COX: And I would sure love to see 0135 1 where that is. And if -- if we don't -- and just 2 skip the intervening years, if you will, and just say 3 here's all three, and here's '97 and here's what's 4 different and here's what's the same. I'd love to 5 see what it is that we, after all these years, still 6 haven't recovered from. 7 MR. GREER: It was basically the prize 8 payout scenario from my understanding. And certainly 9 we'll be happy to provide that analysis for you. 10 MR. COX: Good. Thank you. 11 MR. CLOWE: Anything further? 12 MR. OLVERA: Just one further comment, and 13 I see Robert's still here, and I don't see Liz, but 14 for example, on the back of this ticket, we still -- 15 we have the little message, "contributing to the 16 Foundation School Fund." And at least in my opinion, 17 that still doesn't, you know, just nail that -- nail 18 it into the public that all net proceeds go to the 19 Foundation School Fund, because it implies that 20 perhaps it's only a contribution. I really want to 21 once again emphasize the message that all the net 22 proceeds go to the Foundation School Fund. 23 MR. GREER: I'd like Robert to speak, but I 24 want to address -- when we decided to get more 25 aggressive on this, this was something that we talked 0136 1 about in a forum on a number of different occasions. 2 We knocked around a lot of different terms from a 3 legal perspective that legally staff felt was the 4 best way for us to step out, so they were a key 5 element in putting that message together. And we'll 6 go back and bring up your comment, the net proceeds 7 scenario. There was some extremely vocal opinions 8 about stepping out on this in the past from the 9 Legislature, from specific members of the 10 Legislature. And so we were very conscious of that. 11 And before we ever stepped out and put this on any 12 tickets, we visited with key members of the 13 Legislature to be sure that there was a comfort level 14 there. There is a comfort level there with that 15 statement, and what we were trying to do is to create 16 a message that we could stand by. I'll let Ridgely 17 defer, because he helped me a lot on this particular 18 point, crafted the message. 19 MR. BENNETT: It may have been Diane that 20 helped more on that. If we could call her up. And 21 Commissioners, just for the record, in addition to 22 Reagan's report, this discussion fits nicely under 23 the agenda item for advertising and promotions. 24 MS. MORRIS: I don't really know what more 25 I can add, frankly. I'm aware of some of the past, 0137 1 and I was looking for Nelda Trevino, because I 2 thought she might be helpful on that. 3 MR. ATKINS: Diane, identify yourself. 4 MS. MORRIS: Diane Morris with the Texas 5 Lottery Commission. 6 And I thought she would perhaps provide you with 7 the best background on that. I also asked Lee 8 Deviney in the event you wanted to discuss the 9 concept of net proceeds or if the words -- if those 10 words mattered to you when you said those just right 11 now, and how we identify the funds, if you will, that 12 do go. 13 MR. OLVERA: I don't pretend to be a 14 marketing expert. I don't -- I'm not sold on net 15 proceeds. 16 MS. MORRIS: Okay. 17 MR. OLVERA: I understand them. I like 18 that, but I'm just saying the very general term of, 19 contributing, at least to me, does not necessarily 20 mean that all funds go to this fund. It just means 21 it's a contribution. And I think that's how a -- how 22 Joe Citizen may imply that. 23 MR. GREER: Care to speak to that? 24 MR. TIRLONI: I was going to say -- Reagan 25 said what I was going to say, actually. That was 0138 1 kind of our first cautious step into getting -- 2 trying to be more aggressive due to responses from 3 focus groups, from players, from retailers about the 4 confusion or the misconceptions about where the 5 proceeds go. This was our first cautious -- I'd like 6 to call it a baby step in starting to step out there 7 and be a little more aggressive in trying to educate 8 the public about where lottery revenue goes. But we 9 can certainly revisit it and try to come up with a 10 slogan or a phrase or tag line, whatever you want to 11 refer to it as, that would address your concerns, 12 Commissioner, and maybe be more specific. 13 MR. MARTIN: And we do have plans for 14 additional activities that we could roll out, but as 15 Robert mentioned, this is our first step in that 16 direction. You could go all the way to a 17 beneficiaries campaign that shows where the money 18 goes. But, you know, we are moving that way. 19 MR. GREER: The next step would be to be 20 more vocal in reference to our POS material, the play 21 station, what's in front of you there. I wanted to 22 be sure, and we have talked about it, and Nelda and I 23 talked about it a lot, that we went in a systematic 24 format. The first step was getting the message on 25 the tickets. The next one will be incorporating the 0139 1 message into our POS. The following, if everything 2 seems to be on an even keel, and if the approval -- 3 the approval process is in place from the 4 Commissioners as far as your input, that we'll look 5 at it on our ad campaign. But I'm -- I'm being 6 cautious, and that's where we are coming from. 7 MR. OLVERA: Understood. 8 MR. CLOWE: Thank you, Commissioner. 9 Anything further, Reagan? 10 MR. GREER: No, sir. 11 MR. CLOWE: Then we'll move on to item 28, 12 report by the Charitable Bingo Operations Director, 13 possible discussion and/or action on the Charitable 14 Bingo Operations Division's activities. 15 Mr. Atkins? 16 MR. ATKINS: Thank you, Commissioners. Two 17 things that I'd like to update on my report that is 18 in your notebook. One deals with allocations. We 19 were scheduled to make allocations by May 31st. We 20 actually made those allocations on May 21st. We 21 allocated over $5,500,000. That's a 3.7 percent 22 increase from the previous quarter, an 8.5 percent 23 increase from the same quarter of last year. And we 24 will be providing you with a more detailed memo about 25 that in my next report to you. Also, a quick update 0140 1 on the NAGRA conference. We are scheduled to 2 start -- the conference officially starts on Sunday, 3 June 6th. There is a bonus training session 4 conducted by the Association of Certified Fraud 5 Examiners that will be conducted on May 5th. A 6 number of our audit staff, as well as a number of 7 other members for the conference are scheduled to go 8 to that. The latest attendance that I had was as of 9 May 24th and there were 155 people registered for the 10 conference. So we are excited and looking forward to 11 a very informative conference. Some things that 12 aren't in my report but that I wanted to update you 13 on are some activities that we have been working on 14 and have been going on in the charitable division, 15 Charitable Bingo Division. First of all, if you 16 haven't had a chance, I'd encourage you to go out and 17 visit our web site, www.txbingo.org. We have 18 recently redesigned that with the assistance of the 19 IT Division to make it much more user friendly. In 20 the past, users would have to scroll all the way down 21 the report to find the specific information that they 22 wanted to obtain. Now, it's essentially all 23 contained on one screen and they're able to access 24 that through drop down boxes, so we think it will be 25 much more user friendly for our applicants and 0141 1 licensees. 2 Also, I wanted to share with you some increases 3 that we've noticed in our work load. We attribute 4 this to some of the provisions that were made in 5 House Bill 2519. As you will recall, it increased 6 the number of temporary applications that an 7 organization can get from six to 12. For all of 8 fiscal year 2003, we issued 2600 temporary licenses. 9 For the first three quarters of fiscal year 2004, we 10 have issued 3800 temporary licenses, and we still 11 have another quarter to go. 12 Additionally, June 1st is the effective date for 13 all workers to be on the registry of workers. The 14 staff has been working since June of last year to 15 bring this about. It includes notices that have been 16 placed on the web site, modifications to the operator 17 training program to inform licensees about the 18 registry. We did a lot of work in February. The 19 application was put on the web site. We began to 20 send the application with all original and renewal 21 applications, as well as not approving any 22 applications that didn't have the supplement form 23 submitted with it. 24 Also, we mailed out notifications to all Bingo 25 locations with a copy of the application for them to 0142 1 supply to any workers. In March, we also placed the 2 ID form on the web site. Again, in May when we 3 redesigned the web site, we made the registry a very 4 prominent feature of it so that it's readily 5 accessible to workers. And since February 1st, the 6 staff has entered 8400 applications for the registry 7 of workers. So again, a lot of work that's been 8 being done by the licensing section. 9 And the last thing I wanted to share with you is 10 read excerpts from an article that appeared in the 11 May 13th issue of the Killeen Daily Herald, and this 12 will give you an idea of some work that our Audit 13 Division and Security Division has been doing jointly 14 and the impact it had. On that day, I believe it was 15 the day before a Bell County grand jury indicted two 16 individuals for misappropriating $120,000 of charity 17 money that belonged to the Stillhouse Volunteer Fire 18 Department that was raised through the conduct of 19 Bingo from December of 1998 through September 2001. 20 One of the individuals indicted was the president of 21 the volunteer fire department. And the other person 22 was the operator for the organization. This came 23 about as a result of information that we received 24 from the organization with the leadership change. We 25 began our audit, along with an investigation with 0143 1 security officers. The new leadership of the 2 organization was also very supportive in this process 3 and was very instrumental in getting the district 4 attorney to take action on this matter. And I just 5 wanted you to know about it because I am very 6 appreciative of the effort, again, that the audit and 7 security staff put into that. 8 MR. CLOWE: Very good. Any questions? 9 MR. COX: Just a comment, Billy. I'm very 10 impressed by what you just told me. And I wonder, do 11 you as a matter of course when you run across these 12 kinds of things report them to the industry, to all 13 the charities so that they will know, for instance, 14 that it is a good thing to change leadership from 15 time to time? 16 MR. ATKINS: We have discussed that. One 17 thing we do, Commissioner Cox, is we do include 18 administrative actions in the Bingo bulletin. So, 19 you know, again, part of the purpose is for 20 organizations to know if we catch violations, we'll 21 take action on them. We have also talked about some 22 specific ways that we can share this information with 23 licensees. 24 MR. CLOWE: Billy, are you the presiding 25 officer in San Antonio? 0144 1 MR. ATKINS: I am not. I am still 2 currently the vice-president. I will assume the 3 office of presidency in July. 4 MR. CLOWE: And so where will your 5 convention be? 6 MR. ATKINS: It will be in Halifax, Nova 7 Scotia in June of 2005. 8 MR. COX: I love Halifax. 9 MR. CLOWE: What did you say? 10 MR. COX: I love Halifax. 11 MR. ATKINS: He thinks he'll be able to 12 attend then. 13 MR. CLOWE: I'm going with you to San 14 Antonio in June. And Commissioner Cox will go with 15 you to Halifax next year. 16 Thank you, Billy. 17 MR. ATKINS: Thank you. 18 MR. CLOWE: Is there anyone wishing to make 19 comment to the Commission at this time? 20 Commissioners, if it's your pleasure, I'm going 21 to move that we go into executive session if you have 22 no other business. 23 At this time, I move the Texas Lottery 24 Commission go into executive session to deliberate 25 the duties and the evaluation of the Executive 0145 1 Director and/or Deputy Executive Director, Internal 2 Audit Director, Charitable Bingo Operations Director 3 pursuant to Section 551.074 of the Texas Government 4 Code, to deliberate the duties of the General Counsel 5 and Security Director pursuant to Section 551.074 of 6 the Texas Government Code, to receive legal advice 7 regarding pending or contemplative litigation and/or 8 to receive legal advice pursuant to Section 551.071 9 (1)(A) or (B) of the Texas Government Code and/or to 10 receive legal advice pursuant to Section 551.071 (2) 11 of the Texas Government Code including but not 12 limited to Patsy Henry versus Texas Lottery 13 Commission, Sandy Surber et al. versus GTECH 14 Corporation, Yolanda Garza versus SSP et al., Linda 15 Cloud versus Mike McKinney et al., James T. 16 Jongebloed versus Texas Lottery Commission, 17 employment law, personnel law, procurement and 18 contract law, evidentiary and procedural law and 19 general government law. 20 Is there a second? 21 MR. OLVERA: Second. 22 MR. CLOWE: All in favor, please say aye. 23 MR. OLVERA: Aye. 24 MR. COX: Aye. 25 MR. CLOWE: Aye. The vote is three zero. 0146 1 Texas Lottery Commission will go into executive 2 session. The time is 11:36, today is May 27th, 2004. 3 (Recess.) 4 MR. CLOWE: Come back to order. The time 5 is 2:38 p.m. Texas Lottery is out of executive 6 session. 7 Is there any action to be taken as a result of 8 executive session? I make the motion that the 9 evaluation of the Executive Director be approved. Is 10 there a second? 11 MR. COX: Second. 12 MR. CLOWE: Is there anyone abstaining? 13 MR. OLVERA: I abstain, Mr. Chairman. 14 MR. CLOWE: All in favor, say aye. 15 MR. COX: Aye. 16 MR. CLOWE: Aye. The vote is two zero in 17 favor. The evaluation is approved. 18 Is there any other business to come before the 19 Commission during this session? 20 Believing there is none, this session is 21 adjourned. Thank you all very much. 22 (Meeting adjourned.) 23 24 25 0147 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, STEFFANIE L. DECKER, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify that 8 the above-captioned matter came on for hearing before the 9 TEXAS LOTTERY COMMISSION as hereinafter set out, that I 10 did, in shorthand, report said proceedings, and that the 11 above and foregoing typewritten pages contain a full, 12 true, and correct computer-aided transcription of my 13 shorthand notes taken on said occasion. 14 Witness my hand on this the 7th day of JUNE, 15 2004. 16 17 18 19 __________________________________ 20 STEFFANIE L. DECKER, CSR Texas CSR No. 3926 21 Expiration Date: 12-31-04 WRIGHT WATSON STEN-TEL 22 Registration No. 225 1801 North Lamar, Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 JOB NO. 040527SLD 25