0001 1 2 * * * * * * * * * * * * * * * * * * * * * * * * * * * 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 OCTOBER 22, 2004 8 9 * * * * * * * * * * * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY COMMISSION 18 meeting was held on the 22nd day of October, 2004, from 19 7:58 a.m. to 11:29 a.m., before Shelley N. Jones, RPR, CSR 20 in and for the State of Texas, reported by machine 21 shorthand, at the Offices of the Texas Lottery Commission, 22 611 East 6th Street, Austin, Texas, whereupon the following 23 proceedings were had: 24 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. James A. Cox, Jr. Mr. Roland Olvera 6 General Counsel: 7 Ms. Diane Morris 8 Executive Director: Mr. Reagan E. Greer 9 Deputy Executive Director: 10 Mr. Gary Grief 11 Director, Charitable Bingo Operations Divisions: Mr. Phillip Sanderson 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances...................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 4 ITEM NUMBER II................................... 4 7 ITEM NUMBER III.................................. 32 ITEM NUMBER IV................................... 38 8 ITEM NUMBER V.................................... 39 ITEM NUMBER VI................................... 59 9 ITEM NUMBER VII.................................. 67 ITEM NUMBER VIII................................. 69 10 ITEM NUMBER IX................................... 72 ITEM NUMBER X.................................... 76 11 ITEM NUMBER XI................................... 101 ITEM NUMBER XII.................................. 103 12 ITEM NUMBER XIII................................. 103 ITEM NUMBER XIV.................................. 77 13 ITEM NUMBER XV................................... 90 ITEM NUMBER XVI.................................. 92 14 ITEM NUMBER XVII................................. 107 15 Reporter's Certification......................... 108 16 17 18 19 20 21 22 23 24 25 0004 1 October 22, 2004 2 Texas Lottery Commission Meeting 3 CHAIRMAN CLOWE: If everyone will be 4 seated, we will call the meeting to order. 5 It is 8:00 a.m., October the 22nd, 2004. 6 Commissioner Cox is here. I think Commissioner Olvera will 7 join us shortly. My name is Tom Clowe. 8 The meeting will come to order, and we'll 9 take up Item II on the agenda, report, possible discussion, 10 and/or action on the lottery sales, game performance, and 11 trends. 12 Mr. Deviney. 13 MR. DEVINEY: Good morning, Commissioners. 14 At your last meeting we started a new 15 format to lay out the lottery sales and trends report and 16 combining it with our -- our on-line report. And you seemed 17 to like format. We like it, so we're going to continue on 18 with that and start with recent lottery sales trends. 19 Unaudited fiscal year 2005 year-to-date 20 sales through October 16th amounted to $425.7 million, which 21 is a 12.9 percent increase over where we were in the same 22 time period fiscal year 2004. Comparing fiscal year 2005 23 sales by product to 2004 sales for the same time period 24 through October 16th, we note that instant tickets have 25 posted a 15.3 percent increase. Total on-line sales are up 0005 1 to seven percent; Lotto Texas, Cash Five, and Texas Two Step 2 are trending behind 2004 sales so far, but we're barely into 3 the fiscal year. We think that that is -- that reflects the 4 addition of the Mega Millions game which we expected. 5 Looking at our -- at weekly sales for the 6 most recent week, you can see what our -- our product mix 7 was for the week ending October 16th. Lotto Texas 8 represented nine percent of our sales. Instants were $45 9 billion. And you can see Mega Millions and Megaplier and 10 the rest of the games. And our total weekly sales were 11 $62.1 million. 12 This slide depicts calendar years sales 13 rather than fiscal year sales. And, again, we're going 14 through the same time period, October 16th. Instant 15 tickets, of course, have been our -- our leader with $1.95 16 billion worth of sales; Lotto Texas $388 million; Mega 17 Million, 190.6 million. And we're also getting a nice slice 18 of sales for the Megaplier, 44.9 million; total calendar 19 year of sales $2.9 billion. 20 COMMISSIONER COX: Lee. 21 MR. DEVINEY: Yes, sir. 22 COMMISSIONER COX: On that schedule next 23 time, if you have to put all those digits over there, would 24 you put ciphers on about the last six? The zeros. I -- 25 I -- that's too many numbers. 0006 1 MR. DEVINEY: Okay. 2 This slide depicts calendar year-to-date 3 weekly sales. This is our comparing the first 42 weeks of 4 calendar year '04 compared to calendar year '03. Again, 5 it's another way of looking at the calendar year sales. 6 We're up 14.8 percent in 2004 compared to 2003. On-line 7 year-to-date sales are 20.3 percent higher than for the same 8 time period in calendar year '04, and our instant sales are 9 12.2 percent above calendar year '03 to -- to date. 10 So, in summary, so far this calendar year 11 we're at $2.9 billion of sales compared to $2.55 billion of 12 sales in calendar year 2003. 13 MR. TIRLONI: Good morning, Commissioners. 14 For the record, my name is Robert Tirloni. 15 I am the on-line product marketing coordinator for the Texas 16 Lottery. Moving into the next phase of the presentation, I 17 would like to give you an update on our two major jackpot 18 games, Lotto Texas and Mega Millions. 19 Lotto Texas, we had an 18 million-dollar 20 jackpot ticket sold for the Saturday, October 16th drawing. 21 That ticket was is sold in Watauga. That's a city or town 22 located 10 miles north of Fort Worth. The roll cycle for 23 that drawing consisted of 11 draws. And our current 24 advertised jackpot for this Saturday's drawing is $5 25 million. 0007 1 On Mega Millions we have good news to 2 share, which I'm sure you-all are well aware of. Texas had 3 its first jackpot winning ticket for the Mega Millions game. 4 That ticket was sold in Carrollton for the Friday, October 1 5 drawing. That drawing was advertised at $101 million, and 6 that jackpot roll cycle consisted of 12 draws. The current 7 advertised jackpot for Mega Millions drawing is 40 million. 8 That drawing is tonight, and this roll cycle that we're 9 currently in now began on Tuesday, October 5th. 10 It's interesting to note on this slide 11 the -- the roll cycles. You'll note the -- the Lotto Texas 12 roll cycle, that consisted of 11 draws, got us to $18 13 million. And the Mega Millions roll cycle, that 14 consisted of 12 draws, got that game to 101. You can just 15 see the power of 11 states pooling and combining their -- 16 their sales and the jackpots that are achieved by doing 17 that. 18 A little more information on the Mega 19 Millions jackpot win in Texas. That jackpot ticket was sold 20 at a Sac N Save location. That is a corporate account 21 location. Those locations, Sac N Saves are owned by Minyard 22 Food Stores. That winning ticket was sold from a lottery 23 self-service terminal, and it was a quick pick wager for 24 both boards, the -- the first board and the bonus -- bonus 25 ball board. It was a cash value option in the amount of 0008 1 $62,60,880, and that prize was claimed three days after the 2 drawing on Monday, October 4th. And that retailer, the 3 Sac N Save location is eligible for a one million-dollar 4 retailer bonus. 5 COMMISSIONER COX: Robert. 6 MR. TIRLONI: Yes, sir. 7 COMMISSIONER COX: Is there any difference 8 between eligible for and will receive? 9 MR. TIRLONI: Yes, sir. 10 COMMISSIONER COX: Can you tell me what the 11 difference is? 12 MR. TIRLONI: Yes. Retailers, to -- to 13 actually receive the retailer bonus they go through sort of 14 what I would call a checklist before they can actually 15 receive the bonus. Security first signs off on -- on the 16 process verifying that that location sold the winning 17 jackpot ticket. That then goes to our retailer services 18 area where they verify that the retailer is in good standing 19 in terms of their license. Following that, on -- on the 20 Mega Millions retailer bonus, we also check to be sure that 21 that location is in compliance with the American 22 Disabilities Act as required by the State Lottery Act. Then 23 that -- then that claim form, so to speak, comes to 24 marketing. We forward that over to financial 25 administration, who processes that bonus claim or bonus 0009 1 check through the state comptroller's office, where if there 2 were request any type of vendor holds on that retailer's 3 account through the state or through the comptroller, it's 4 possible that that -- that that bonus could be held up if 5 there were holds or if there were any issues that that 6 retailer had in the state. 7 COMMISSIONER COX: Okay. Now does that 8 happen anytime a retailer is eligible for a bonus? 9 MR. TIRLONI: It happens on Mega Millions, 10 Lotto Texas bonuses, Texas Two Step bonuses, and it happens 11 on any instant ticket bonuses. And we pay bonuses on 12 instant ticket where the top prize is a million dollars or 13 more, and it's a fixed bonus on our -- on our instant 14 tickets. It's a -- it's flat 10,000-dollar bonus. 15 COMMISSIONER COX: Thank you. 16 MR. TIRLONI: You're welcome. 17 MR. GREER: And, Commissioner, just to add 18 to that, we usually -- from a time frame perspective see 19 about a 30- to 60-day window in there. And then from that 20 point -- like right now, we're coordinating a retailer bonus 21 in San Antonio, 360,000. And then I try to go because I 22 like, you know, thanking a retailer, being there personally 23 to, you know, wish them well. 24 Just as a side note, many of them split it 25 up with their, you know, employees, the guy that sold the 0010 1 ticket or whatever, and some have a corporate policy that 2 doesn't allow that. But the bonuses have been a -- a very 3 fruitful aspect to reinforcing to the retailers how much we 4 appreciate them. And we're going to continue to monitor 5 that, and I'll try to personally be at as many of those as 6 possible. 7 COMMISSIONER COX: Have we looked, Reagan, 8 at whether that bonus money might be better spent if we were 9 to, say, increase the five percent or 5.6 percent or 10 whatever across the board? 11 MR. GREER: Yes, sir. That has been 12 something we continue to examine. But based on the fact 13 that the five percent is an acceptable level and that there 14 is fiscal notes and things that are responsible for that 15 when we do our overall projections for the year, we stay 16 kind of with that five percent and then work with the 17 bonus. And there are some other ways that we can 18 incentivise the retailers. 19 In fact, as recently as yesterday I was at 20 a GTECH meeting with DSRs from around the state. We 21 continue to look at that, and they understand where we are 22 and we will continue on with that issue. 23 MR. TIRLONI: And, Commissioners, Lee is 24 going to share with you under a different agenda item all of 25 the financials that surrounded the payment of this -- of 0011 1 this actual jackpot prize. I believe that's agenda Item V 2 this morning. 3 Just to continue on our Mega Millions 4 summary, these numbers run through -- from December 5th 5 when -- the first drawing that we participated in for Mega 6 Millions, through this past Tuesday. And you see Mega 7 Millions' draw sales total over $211 million, with Megaplier 8 draw sales over 50 million, giving us a total combined of 9 261.8 million. You see that Megaplier is still making up 10 19.3 percent of the total. That's exactly where it was last 11 month, so you'll notice there isn't any change. 12 The average Mega Millions jackpot since 13 we've been in the game has been 56.8 million, and the 14 highest jackpot has been 290 million, and there have been 14 15 where the jackpot greater has been greater than 100 million, 16 and 38 draws where the jackpot has been greater than 50 17 million. 18 Moving from sales to winners, you see that 19 we've had just under five million winners -- 20 COMMISSIONER COX: Stop at, Robert, sales 21 just for another minute. 22 MR. TIRLONI: Yes, sir. 23 COMMISSIONER COX: Have we been able to 24 tell any effect of a Texan winning, or is it too early to 25 know? 0012 1 MR. TIRLONI: I have a -- I have a slide 2 to -- to back that. I think we'll -- 3 COMMISSIONER COX: Thank you. 4 MR. TIRLONI: -- start to illustrate that. 5 We had just under five million winners on 6 Mega Millions in Texas, and we've paid out over -- almost 7 101 million in prizes. The number of winners who have 8 Megaplied is almost 1.2 million, and the amount of Megaplier 9 prizes is slightly over 21 million. 10 We're happy to be able to add that we have 11 had one Texas jackpot winner on this slide. We have 78 12 second tier winners and that's the 175,000-dollar prize and 13 13 of those 78 second tier winners have Megaplied their 14 prize. 15 Commissioner Cox, this is the slide that 16 you were just asking about or the question that you just 17 asked. 18 What we did was we looked at the first five 19 draws in the current roll cycle -- and that is the red 20 line -- compared to the first five draws in the previous 21 roll cycle. And the previous roll cycle is the roll cycle 22 that ended up rolling up to the 101 million-dollar jackpot. 23 And you can see -- we think this is good news -- that after 24 the jackpot win, the red line, you can see that the sales 25 per draw have been -- have been somewhat higher. The 0013 1 fluctuation that you see, this is a Tuesday to Friday 2 difference. So this is Thursday draw, Friday draw, Tuesday 3 draw, Friday draw. That is very typical. We see that on 4 Lotto Texas too, that are Saturday draws usually have higher 5 sales than our Wednesday draws. 6 One -- one thing that I think is important 7 to note, you see that on the previous roll cycle we saw -- 8 saw a pretty steep drop from the Friday draw to the Tuesday 9 draw, and you can see that the deep -- well, there was 10 somewhat of a decrease from the Tuesday to the Friday draw 11 in this roll cycle. It was substantially less. So overall 12 this is -- it's still pretty early after we've had that 13 jackpot win. But we think that -- we think that this is 14 good news. 15 We -- we changed our metro traffic reads 16 around the state after we had our jackpot win in Texas. 17 Those are the ten-second radio reads that we -- that are 18 broadcast during the traffic reports in the -- at rush hour 19 in the morning and in the evening. We usually use those 20 traffic reads to communicate current jackpot amounts for 21 Mega Millions and for Lotto Texas. But after the jackpot 22 win, we changed those to start to advertise the fact that we 23 did have a 101 million-dollar jackpot ticket sold in Texas. 24 Continuing with our update, this is the 25 slide that shows the Mega Millions and Megaplier draw 0014 1 sales. We've looked at this slide for months now. The 2 trend continues. You see the relationship between the Mega 3 Millions sales in red and the Megaplier sales in blue. 4 Again, we talked about the fact in the past how Mega 5 Millions is seen in Texas as a triple digit jackpot game. 6 And you can see the pretty substantial spike or increase 7 that we see in sales for both Mega and Megaplier as we 8 approach that -- as we approach that triple digit jackpot. 9 And, of course, this is the 101 million-dollar jackpot where 10 we had the winning ticket sold. And then, of course, we 11 drop down to our starting level of ten million and start the 12 building process again. 13 This is another slide we shared with you 14 for the first time last month. Again, Megaplier sales were 15 19.3 percent of the total. That's staying constant. You 16 see in the green background is the Mega Millions jackpot 17 amount and then in the foreground is the Mega Millions and 18 Megaplier sales. So you see the build up to the 101 19 million-dollar jackpot and then you can, of course, see the 20 increase in the Mega Millions sales and in the Megaplier 21 sales as well. And then again we start back at our starting 22 levels of ten. 23 We've been looking at our cumulative Mega 24 Millions draw sales and comparing that to the other states. 25 And we've talked about this regularly. You see that Texas 0015 1 is pretty much in second place when we look -- when we 2 compare ourselves just based on draw sales. And last month 3 we showed you that when we break that down and look at it on 4 a per capita basis, we tend to drop down. As I said, I -- I 5 think that slide that we shared a little earlier, that shows 6 that the sales are up in this current roll cycle for the 7 first five draws is a good sign. And we hope to be able to, 8 of course, increase our standing in terms of our per capita 9 sales. 10 Once again, though, I think it's important 11 to remember the strength of our in-state game. And we did 12 show this -- we did show this slide last month. Basically 13 what this does is it takes our in state lotto per capita, or 14 our Lotto Texas per capita, and combines it with our Mega 15 Millions per capita. And so the yellow portion of this bar 16 is our Lotto Texas per capita, and the green portion of the 17 bar is our Mega Millions per capita. And that's true, of 18 course, for all the other states too. Red is the Mega 19 Millions per capita for New Jersey. This is their mega -- 20 I'm sorry. This is for their in-state. This is their Mega 21 Millions. For New York, this is their in-state, and this is 22 their Mega Millions. 23 And when we look at it on -- in that 24 viewpoint, where -- where you look at it in terms of what is 25 our per capita on our -- on our multimillion-dollar jackpot 0016 1 games combined, Texas fairs very well. And I think that 2 this slide shows the strength of Lotto Texas in the state of 3 Texas and the loyalty to -- to the lotto game. Of course, 4 our ultimate goal is to keep this bar exactly where it is, 5 if not make it larger, to grow lotto but then also to grow 6 the per capita on Mega Millions. 7 This slide just gives us an overall 8 picture. I think this slide is good because it takes us all 9 the way back to December of '03 when we actually joined Mega 10 Millions. In red is Lotto Texas in the background, and the 11 blue bars in the forefront are Mega Millions. And all this 12 slide really does is just shows you the progressions of the 13 jackpot roll cycles -- excuse me -- from December of '03 to 14 October, '04. So you see the large lotto roll up to 15 1,045,000. 16 I don't know if you remember back then we 17 had -- had -- during that time period we had two 100 18 million-dollar or two triple digit jackpots simultaneously. 19 So we also had Mega Millions in the 100 million-dollar range 20 built up to our -- to that 290 million-dollar Mega Millions 21 jackpot, which is the highest we've experienced thus far. 22 And, of course, you see the build up to the 101 million- 23 dollar jackpot. And you can see again where we currently 24 are with lotto in the red in the background. And again you 25 can see I refer to the number of draws in the roll cycle. 0017 1 You can see the number of draws that it took on this chart 2 to get up to the 101 million in blue. And then you can see 3 the similar number of draws in lotto gets us to the 18. 4 This is just one other comparison between 5 lotto and Mega Millions and Megaplier. And, again, this is 6 from December through past Tuesday, and you see Lotto Texas 7 sales totaling over 415 almost 416 million. Mega Millions 8 and Megaplier combined at just under 262 million. And when 9 you break that down into per capita, you see Lotto Texas at 10 just under 41 cents and Mega Millions and Megaplier combined 11 at about 25 cents. 12 We do have some follow-up from last -- 13 well, I say last month -- earlier this month, I should say, 14 October 1 meeting, and it's a follow-up and analysis on 15 the -- the cost benefit that was done on the 16 multijurisdictional game. 17 MR. DEVINEY: You had asked us some 18 questions during or after the meeting last week, and we 19 wanted to follow up. And so I'll read this through since I 20 know it's a little bit hard to read. 21 Combined sales for Lotto Texas and Mega 22 Millions were projected to be $631.6 million. This was in 23 the cost benefit analysis. From the start of the Mega 24 Millions game through the fiscal year '04, and that three -- 25 631.6 million is an adjusted number because we assumed a 0018 1 November 1 start date and we actually December 3rd, so we've 2 adjusted for that in giving you that figure. 3 Actual sales for these two games for the 4 period were 650 point -- 615.3 million, or we were within 5 two -- 2.6 percent of our estimate. We were under, but we 6 were -- we were pretty close, within three percent. 7 However, the way it broke out is a little 8 different than we expected. Mega Millions sales including 9 the Megaplier game were estimated $337.6 million from the 10 start through the end of fiscal year, through August 31st, 11 the end of our fiscal year. Actual sales were $235 and a 12 half million. So we were -- on Mega Millions and Megaplier, 13 on the multijurisdictional game, a portion, we were -- we 14 over projected by about a hundred million dollars. But 15 Lotto Texas sales for that same time period were estimated 16 to be $294 million, and our actual sales were $380 million 17 so we were $86 million to the good on that portion. 18 But the bottom line, I think, is -- is that 19 on-line sales, after December 3rd, were 22.8 percent higher 20 than on-line sales after December 3rd, 2002. So on a year- 21 to-year basis with the addition of the multijurisdictional 22 game, our total on-line sales increased nearly 23 percent. 23 COMMISSIONER COX: Good. Now, that's a 24 fact. Is there a causal relationship there? 25 MR. DEVINEY: Well, we believe -- 0019 1 COMMISSIONER COX: Were they also up 22.8 2 percent before Mega Millions came in. 3 MS. LEON: Hi. My name is Patty Leon. For 4 the record, I'm the financial analyst in the financial 5 administration division. They were actually down 5.9 6 percent between September 1st and December 3rd, year over 7 year, on-line. 8 COMMISSIONER COX: So for the portion of 9 the fiscal year that we did not have Mega Millions, on-line 10 sales were down. 11 MS. LEON: 5.9 percent. 12 COMMISSIONER COX: And after Mega Millions 13 came in, they were up 22.8 percent. 14 MS. LEON: Correct. 15 COMMISSIONER COX: Sounds like the 16 multijurisdictional game helped on-line sales. 17 MS. LEON: They did. 18 COMMISSIONER COX: I mean, the -- yeah, 19 okay. On -- this is on-line sales. 20 MS. LEON: Correct. 21 COMMISSIONER COX: What do we know when we 22 know that? What do we know when we know that? We know that 23 on sales -- on-line sales were higher. We knew they would 24 be. We know that Mega Millions was a third less than what 25 we thought it would be. We know that Lotto Texas was more 0020 1 than we thought it would be; and, yet, we're told it's a 2 weak game. What -- what does all that mean? 3 MR. DEVINEY: Well, one thing that may -- 4 may have made a difference with Lotto Texas is where we saw 5 the real strength of Lotto Texas is -- and I'm not an 6 analyst. I don't know quite what I'm doing. But Patty and 7 Robert, they analyze data more carefully than I do, but if 8 you look at the 145 million-dollar jackpot, when Lotto 9 Texas -- you know, it's predicted to, you know, from time to 10 time generate a large jackpot, and we got a huge boost from 11 that and not only for -- for the Lotto Texas game but all of 12 our other sales went up at the same time. 13 COMMISSIONER COX: Yeah. What -- what 14 happened to the scratch offs, and is there anything in that 15 that you would attribute to the additional on-line game? 16 MS. LEON: I did have a chance to do some 17 looking at the instant games during the run up for the 18 145 million, and we did see those pull up. And 19 interestingly enough, it's -- it was in a time of the year 20 that, you know, it tends to trend down. There's a -- 21 somewhat of a seasonality on instant tickets but because of 22 the jackpot people go in and they buy them. We saw -- I 23 believe, I want to say it was like a four point -- I don't 24 have it with me, but it was something like a 4.8 percent 25 increase, you know, during that time period that the 0021 1 instants increased along with the jackpot. 2 COMMISSIONER COX: So the -- was the 3 increase in instant sales after Mega Millions greater than 4 the increase in instants before Mega Millions? 5 MS. LEON: I haven't broken it down that 6 way, but I'll be happy to do that and take a look at it. 7 COMMISSIONER COX: Okay. It looks like 8 you've got some great data to work with. 9 MS. LEON: It's getting better. 10 COMMISSIONER COX: Great. 11 MS. LEON: And we're fleshing out the 12 analysis. We've gotten quite a few things that we're 13 involved in, but we're kind of in early stages. And we're 14 not quite to the finishing place on it. When it comes to 15 looking at this, we did our forecast for Mega Millions based 16 on per capita sales using the average for the group because, 17 you know, we didn't have any way of saying we would be 18 higher or lower. There was no definitive reason for us to 19 say that. And -- and, I mean, we've touched on what one of 20 the most important determinants is and that's jackpots and 21 those are kind of unpredictable. 22 The other thing about this last year that 23 does make it harder to analyze is that we had the matrix 24 change, and we weren't really able to tell were we going to 25 ever see that type of jackpot or not with the new matrix 0022 1 change because it was so new. So I think we're beginning to 2 answer some of the questions on performance of jackpots, and 3 that's one reason we look at it so carefully is to see how 4 many rolls does it take; you know, is that -- are we trading 5 off a long roll cycle for an eventual high jackpot or what. 6 So these are all questions that come up in the analysis, but 7 I'll definitely look at the instant ticket issue. 8 COMMISSIONER COX: I think you just 9 answered my next question. You said that in estimating that 10 we would have this 337 million, you use the average and I 11 think -- 12 MS. LEON: For the whole group. 13 COMMISSIONER COX: I think we were told the 14 last month that this game increases in popularity over time, 15 and we might have -- knowing what we know now, we might have 16 used the more recent states' average rather than all the 17 states' average. 18 MS. LEON: Exactly. 19 COMMISSIONER COX: Okay. 20 MS. LEON: And -- and we also from 21 experience can see that even though the matrix change having 22 an impact on lotto sales, it's still popular in the state 23 and it's held a strength that perhaps in some of the other 24 states as we've seen from the slide last month, that's not 25 also true. But then that's generally true as you 0023 1 experience, you know, through time, you see how it's going 2 to actually, you know, pan out in -- here in Texas compared 3 to the others. I mean, beforehand we didn't have any idea, 4 but now we're starting to develop a lot better insight to 5 how it works here in -- in our state. 6 MR. GREER: And, Commissioner, two aspects 7 to that that I would like to reinforce. 8 And, great explanations, Patty, because of 9 the -- the averages as far as per cap. 10 But it's ironic that we spend a lot of time 11 on the first -- you know, talking about what was going to 12 happen after we had our first Mega Millions winner and that 13 night we had a winner. So I think we'll get a much better 14 feel. And Robert mentioned some of the things that we're 15 doing as far as out reach. But it was the unwinnable game 16 that suddenly is winnable. And that attitude has also 17 changed in the retailers because they weren't real sure 18 either it either. 19 And we're still working on getting the 20 message out that 38 cents on the dollar, you know, when you 21 buy a Mega Millions' ticket stays within the State of Texas, 22 46 cents on the Megaplier. There's an education process 23 that goes with that. But the buy in with the retailer, when 24 we hand them a million-dollar bonus check -- hopefully 25 they'll, you know, pass all those checklist things that we 0024 1 just mentioned to you a moment ago -- that enthusiasm level 2 has risen immensely. And the retailer is a critical part of 3 the success of the game. 4 COMMISSIONER COX: Sure. 5 MR. GREER: And so, you know, this will be 6 a great slide to, you know, monitor months from now and see 7 how that substantially changes based on the fact that we've 8 overcome, too, what I consider to be major hurdles: One is 9 a winner; and the other is to be able to substantiate to the 10 retailer, thank you, and here's your million -- million- 11 dollar check. And this could be you in the future, 12 Mr. Other Retailer. So I'm really excited about the 13 potential that we have within the Mega Millions to continue 14 to watch this go up. 15 MR. DEVINEY: This is another way of -- of 16 looking at this question and we talk about talked about 17 this -- this last month and Patty just mentioned it. For 18 the cost benefit analysis we assumed weekly per capita sales 19 for a multijurisdictional game at 34 cents. 20 Patty, was that 29 -- 29 cents for the base 21 game and a nickel? 22 MS. LEON: No. That's -- that's it. 23 MR. DEVINEY: No. And that's -- that's 24 down there. 25 MS. LEON: Right. 0025 1 MR. DEVINEY: Okay. So for the base game 2 it was 30. We were -- that's the average of all the -- the 3 pre -- the ten states that were in before Texas, and this is 4 what we assumed for Lotto Texas. We assumed 33.97 cents per 5 week. And, in fact, this is -- that's what our actual 6 production has been and 21.7 cents for Mega Millions that 7 are actual production. This is from December 3rd through 8 August 31st. 9 Now, this might look different, you know, 10 when we look at it for -- for a full year after we've had 11 this large jackpot that we just won in Texas. We certainly 12 hope that -- to see this number rising. And then for the 13 Megaplier game, we estimated for the cost benefit analysis 14 five cents, and, in fact, we were right on target. Those 15 are our actuals of 5.2 cents. 16 Comparing on-line and instant sales, fiscal 17 year 2003 and 2004, our total sales have increased by 11.4 18 percent over fiscal year 2003. It's a little bit hard to 19 see. These are our on-line sales, and these are our instant 20 sales for 2003. We were at 2.1 billion for instants, a 21 billion for on-lines. Our on-lines have increased 16.1 22 percent and our instants have increased 9.2 percent from 23 '03 -- fiscal year '03 to fiscal year '04. 24 MR. TIRLONI: So, Commissioners, in 25 closing, I -- I think with what we've just been talking 0026 1 about and what me and Patty have -- have illustrated is when 2 we introduced Mega Millions, we knew we were introducing a 3 multimillion-dollar jackpot in the state of Texas. Besides 4 the base game, we introduced an add-on feature known as the 5 Megaplier. And we know that dollars may shift between or 6 within the product mix, but overall at the end of year we 7 have seen that more dollars were generated for Texas Lottery 8 in Texas Lottery sales with the inclusion of the Mega 9 Millions game. And more sales generated by the addition of 10 that game means more revenue to the State of Texas. 11 And that concludes our presentation. If 12 you have any further questions, we would be very happy to 13 try to answer them for you. 14 CHAIRMAN CLOWE: I want to comment on 15 Commissioner Cox's, I think, very thoughtful question. My 16 reaction -- Lee, you got to take a shot, so I'll take one. 17 MR. DEVINEY: Okay. 18 CHAIRMAN CLOWE: My reaction is that if you 19 go back and analyze during a period that is covered in this 20 presentation, the impact of the large jackpots will be 21 significant. And my feeling is that when players are 22 motivated to go in and buy tickets on large jackpot 23 opportunities the attractiveness of the instant tickets -- 24 and that is improved -- works together, and we see the kind 25 of per capita purchasing that is significant. I don't know 0027 1 where this term "unwinnable" game ever got started. I don't 2 think that's valid. I wouldn't have voted for the Mega 3 Millions if I thought it was unwinnable. I wouldn't have 4 voted to change the matrix on Lotto Texas if I thought it 5 was unwinnable. 6 MR. GREER: I agree. 7 CHAIRMAN CLOWE: These games are winnable, 8 and they're attractive. And when there's a large jackpot, 9 the benefit not only goes to the winner but it inures to the 10 sellers. You pointed that out. And when you have over 11 17,000 sellers out there, that they join in that is 12 important. And -- and you pointed that out very clearly. 13 The overall idea here, to me, is that we've 14 got to keep these games attractive to the players, and 15 that's where I think we're seeing a very god job being 16 done. The Mega Millions addition, the change in the matrix 17 in Lotto Texas has resulted in big jackpots that drive those 18 games. The change in Texas Two Step, well, you need to 19 constantly look at those on-line games. And we spend a lot 20 of time talking about the instant tickets, and they are a 21 driver that is so strong. I'm not sure that we really 22 realize to this point in time how much that affects us, but 23 we need to watch these games, keep them attractive to the 24 players, and that per capita purchasing in this state, to 25 me, is a key number. 0028 1 It is more constant than perhaps the 2 fluctuations that you get with the jackpot fluctuation. 3 That's -- that's a tremendous fluctuation. The per capita 4 purchasing over a period of time, to me, is more than a 5 long-term indicator, and that's what we ought to be 6 watching. 7 That's my best comment, and that's nothing 8 more than a comment on what -- what I think is really a very 9 thoughtful question that you've asked. 10 MR. GREER: Mr. Chairman. 11 COMMISSIONER COX: I agree with all of 12 that. 13 MR. GREER: I would like to just reinforce 14 one of the unwinnable points that you made a moment ago, 15 where that came from: retailers and the media. And as I 16 was out, you know, the retailers were coming up to me and as 17 we get into this game, that's what they were hearing from 18 the players. It was a term that probably, you know, 19 basically probably came from the critic's perspective, that 20 rose to a level of a constant -- I wouldn't say in my 21 face -- but certainly a constant level of questioning that I 22 heard consistently in the media and then from retailers. 23 And I totally agree, you know, with where 24 you're coming from, and that's why I threw it out there 25 because we never believed that, you know, from the lottery's 0029 1 perspective. We had confidence in the fact that we would -- 2 and I -- I was clear on that in -- in my statements to the 3 press that we would get our winner, and we did. And I 4 continue to try to get that phrase out of the questioning 5 process. But I just wanted to reinforce my appreciation for 6 your thoughts and that we are totally focused on continuing 7 to watch this game grow. 8 COMMISSIONER COX: Reagan, the -- the 9 statement that any game of chance that is fair is unwinnable 10 is absurd on its face. 11 MR. GREER: I agree. 12 COMMISSIONER COX: So why would people -- 13 what -- what are people trying to accomplish when they make 14 statements like that. 15 MR. GREER: I'm still trying to figure that 16 out myself. I mean, you know, we're looking at benefiting 17 the state by creating a lottery that is exciting and 18 entertaining and that has winnable game in the process. But 19 it's out there and it's just a sort of an underlying 20 scenario that in any type of questioning that I've been a 21 part of, whether it's media or whether it's in a retail 22 forum or something like that, maybe they want to think the 23 worst, I guess. And certainly that's not what we're about. 24 You know, we're looking at it from a 25 positive perspective on what can it do for the players. And 0030 1 when you look up there and you see the number of winning 2 tickets that we sold on Mega Millions, that's exciting to 3 me. That means a lot of people are coming into an 4 environment there that they didn't anticipate, but we're 5 being able to award them with, you know, prize money. 6 COMMISSIONER COX: Sure. 7 MR. GREER: And I don't have an answer to 8 your question, but I am trying to, you know, continue to 9 monitor that and just turn it around whenever people bring 10 that to me attention. 11 COMMISSIONER OLVERA: Reagan, is that 12 information available to the retailers? For example, the 13 slide that showed the 78 second tier winner. 14 MR. GREER: Yes. Yeah. We talked about 15 that, you know, a lot, get that word out, a lot. But -- but 16 the players as a whole had a skepticism toward 135 million 17 to one odds, and that's where the term sort of started. 18 They share it with the retailer and the media and when they 19 go out and, you know, visit with people in general. And 20 they would -- ultimately it would come back to me in the 21 form of a question. And so I'm thrilled with the fact that 22 we're, I think, putting that to the side, and we'll continue 23 on a positive upbeat message where there are 78 second tier 24 winners and we have had a winner in Texas. And I think 25 that's going to help us overall to explain to players that 0031 1 we did this with two things in mind. One is them because 2 they were asking for it. I mean, they were driving to 3 outlying states to play Powerball all the time. You saw 4 what was happening -- 5 COMMISSIONER COX: Still do. 6 MR. GREER: Still do. Yeah, they're 7 probably are playing both. But the other one was, you know, 8 to give them that opportunity and the other one was to allow 9 them to have an experience that they may not get otherwise 10 and we had one in the Carrollton area and we'll have more. 11 MR. TIRLONI: Commissioners, if -- if I 12 may, I -- just to follow up on that. I traveled to Houston 13 to the GTECH Houston sales district on October 13th and met 14 with some of their top selling retailers and these retailers 15 are selling a large amount of on-line and a huge amount of 16 instant tickets per week and there is a new level of 17 enthusiasm when I was there meeting with them and talking to 18 them about lottery sales, lottery games in general. They 19 all knew about the Carrollton win. They knew about the one 20 million-dollar bonus, and -- and, like I said, they were 21 enthused. They were energetic. And they -- they're excited 22 about the Mega Millions game. They were -- they were very 23 positive about it, and I think Reagan called it a hurdle. 24 And I think in their minds it was a hurdle and they have 25 seen, you know, a ticket could be sold here in Texas. And 0032 1 it was. And maybe we'll be the next retailer to sell it. 2 So I just wanted to share that all with you. They were -- 3 they were very excited about the fact that a ticket was sold 4 in Texas. 5 COMMISSIONER COX: Good. 6 CHAIRMAN CLOWE: Very good. Anything 7 further? 8 COMMISSIONER COX: No, sir. 9 CHAIRMAN CLOWE: We'll go to the Item 10 Number III, report, possible discussion, and/or action on 11 the HUB and on minority business participation including the 12 agency's mentor protegee program. 13 Good morning, Joyce. 14 MS. BERTOLACINI: Good morning, 15 Commissioners. 16 For the record, my name is Joyce 17 Bertolacini, and I'm the agency's historically underutilized 18 business coordinator. Included in your notebooks is the 19 September monthly minority HUB minority contracting activity 20 report, which includes all fiscal year 2005 expenditures 21 paid from September 1st of 2004 through September 30th of 22 2004. Our total qualifying expenditures as of September 23 30th were $12.6 million, and our estimated HUB utilization 24 was $3.9 million, which equates to 31.06 percent. 25 Last Friday the Texas Building and 0033 1 Procurement Commission released its annual state wide HUB 2 report for fiscal year 2004. I'm happy to report that our 3 agency attained a total HUB percentage of 27 percent. I 4 believe this is a -- it may be an all-time high for the 5 Lottery Commission, but it certainly is a 10-year high at 6 this point. 7 In addition, the commission continues to be 8 ranked number one by overhaul -- overall HUB percentage 9 among the top ten spending agencies. I would like to point 10 out that that does not mean that we have the highest 11 percentage in the state, but we do have the highest 12 percentage among the ten largest spending agencies of the 13 state. And I will be providing additional analysis and some 14 summary reports to you at next month's commission meeting. 15 Regarding the commission's mentor protegee 16 program, the commission is still overseeing one mentor 17 protegee relationship and we are pursuing mentor/protegee 18 matches. Conversations with our prime vendors and some of 19 our newly awarded contractors are being initiated in an 20 effort to establish some new relationships for this fiscal 21 year. 22 That's all I have, but I would be happy to 23 answer any questions. 24 COMMISSIONER COX: Joyce, the best I can 25 recall when I came on this board a couple of years ago, 0034 1 there were six or eight of these mentor protegee 2 relationships. Help me get from there to one. 3 MS. BERTOLACINI: Okay. We did have a 4 number that were all initiated at the same time and because 5 of that they all expired pretty much at the same time. 6 COMMISSIONER COX: So these have a term? 7 MS. BERTOLACINI: Yes. 8 COMMISSIONER COX: Okay. 9 MS. BERTOLACINI: There is a limit of two 10 years that we can be involved in overseeing the 11 relationship, and so we went through the first wave and kind 12 of haven't initiated enough to get back with the same level 13 that we've had before. So I am working on that. It may 14 take some time because it's a matter of getting two parties 15 to agree to work together. And so, you know, we had a bit 16 of a gap here, but we still hope to have something new 17 coming up in this fiscal year. 18 COMMISSIONER COX: Knowing how cooperative 19 our -- our retail -- our providers are, I'm guessing that 20 it's an absence of protegees. 21 MS. BERTOLACINI: We did have an initial 22 meeting where we solicited people that were interested in 23 being protegees, and I did also address that at our HUB 24 forum that we had last June, but we haven't gotten a whole 25 lot of applications coming in since then. There hasn't been 0035 1 a big wave. So, again, I may have to do something to go out 2 and gather more applications from potential protegees to 3 give the mentors a pool of people to choose from. 4 COMMISSIONER COX: Thank you. 5 CHAIRMAN CLOWE: And, Joyce, that's very 6 important. I think the obstacles that exist with doing 7 business with a government agency are not as bad as they are 8 perceived to be. And the protegees, I think, often look at 9 that and say, it's just not worth the trouble. We spent a 10 lot of effort when that program began, educating and making 11 potential protegees comfortable with coming into that 12 program. I -- I hope that if you need help, you'll indicate 13 that in developing the protegees and keep that program 14 active and doing well. 15 MS. BERTOLACINI: I will make that a 16 priority for fiscal year 2005, sir. 17 CHAIRMAN CLOWE: I recently received a 18 letter from Representative Sylvester Turner, Commissioners, 19 and he was inquiring about allocation of dollars to the 20 Hispanic business interest in the state. I sent a response 21 to him earlier this week, and I hope you-all were copied on 22 that and saw the data that was included in that letter. It 23 stated what the agency's position is and -- and what our 24 record is, which is excellent. 25 Is this material on our website, Joyce? Is 0036 1 it available through that communicative link? 2 MS. BERTOLACINI: I don't believe that it 3 is at this time. And I think that Representative Turner's 4 letter was specific to our -- our expenditures with minority 5 media -- 6 CHAIRMAN CLOWE: Right. 7 MS. BERTOLACINI: -- in particular, and -- 8 and that was data that came out of the marketing group. I 9 don't -- I do see the subcontracting dollars that are spent 10 by the advertising vendors, but I don't always see the 11 specific breakdown because that happens at a lower tier 12 level than the reports that I get. So, I guess, I could 13 probably get with marketing to see whether that information 14 could be put out there. 15 CHAIRMAN CLOWE: I wish you would do that 16 if you can, and perhaps not in tremendous detail but so that 17 a summary, an executive summary, could be made available to 18 those who are interested. And I think -- I think 19 publicizing that shows that we are desirous of maintaining 20 this situation and improving it. And I think we ought to 21 continue to give this a great effort. 22 It's -- it's difficult for private -- 23 particularly small private enterprises to find out how to do 24 business with the government. I think that's been my 25 personal experience. And I think we ought to give an extra 0037 1 effort to reaching out and publicizing that we are an agency 2 that wants to have the opportunity to do business with 3 everyone in the state. 4 MS. BERTOLACINI: I certainly agree with 5 that, and I think that our HUB numbers do reflect that we 6 have been improving gradually over the years. And, in fact, 7 the jump this year from fiscal year '03 was over 8.5 8 percent. I believe it was 8.6 percent. A lot of that has 9 been coming from the subcontracting opportunities that we 10 have through our larger contracts. But even without the 11 subcontracting, I -- I believe that we've done a pretty good 12 job with our direct expenditures. And, again, I will be 13 giving you a lot more detail at the next meeting about that. 14 But certainly communicate with me any -- 15 any particular areas that you would like me to -- to 16 highlight for you at the next meeting. 17 CHAIRMAN CLOWE: Well, I think you're on 18 the right track. Just keep up the good work. And, Reagan, 19 I saw you making a note you'll help with that -- 20 MR. GREER: Yes, sir. 21 CHAIRMAN CLOWE: -- for you to -- maybe 22 getting something on the website. 23 MR. GREER: Yes, I will. 24 CHAIRMAN CLOWE: Great. 25 MR. GREER: And as a follow-up to that, I 0038 1 too received a number of letters similar to the one that the 2 chairman got from Representative Turner and have addressed 3 the points that were brought up. But one of the primary 4 elements is the opportunity to communicate this HUB 5 participation and took advantage of this milestone and did 6 send a letter to the entire legislature on October 19th to 7 let them know that we continue to be focused on HUB. We're 8 very proud of our 27 percent participation rate and we'll 9 continue to monitor that with them and I'm certain we'll get 10 positive feedback on that. 11 CHAIRMAN CLOWE: Anything further on that? 12 Thank you, Joyce. 13 MS. BERTOLACINI: You're welcome. 14 CHAIRMAN CLOWE: Next is Item Number IV, 15 report, possible discussion, and are -- and/or action on the 16 agency's contracts. 17 MR. DEVINEY: Commissioners, again, I'm Lee 18 Deviney. And I'll just point you to tab four in your 19 notebook which is the weekly status report on Lottery 20 Commission contracts that have an estimated value of $25,000 21 or more. If you have any questions -- it's a fairly short 22 report this month. If you have any questions, please ask 23 them, and we'll attempt to answer it for you. 24 CHAIRMAN CLOWE: Are there any questions? 25 Lee, the next item, I believe, is also 0039 1 yours, Number V, report, possible discussion and/or action 2 on the agency's financial status -- 3 MR. DEVINEY: Yes, sir. 4 CHAIRMAN CLOWE: -- including the recent 5 Mega Millions jackpot prize winner payment. 6 MR. DEVINEY: And I'll take that up last. 7 Just to go through the items in the notebook, the first item 8 in the notebook is a report on transfers of agent to the 9 Foundation School Fund and our allocations of unclaimed 10 prize money. During the month of October, you'll note, 11 there were two transfers made to the Foundation School 12 Fund. The first transfer at $10.6 million represented an -- 13 represented unspent administrative appropriations, and the 14 second transfer of 73.1 billion represented transfers based 15 on September, 2004 sales. 16 Through October 13th fiscal year transfers 17 to the state have amounted to $89.4 million and going all 18 the way back to 1992, total transfers to the state at this 19 point amount to $11.9 billion. And all these -- and these 20 transfers reported on a cash basis. Next, you'll find an 21 orange divider page, and behind the orange divider page is 22 the Lottery Commission's budget report through September, 23 2004. 24 For fiscal year 2005, you'll note the 25 Lottery Commission was appropriated $165.3 million, which is 0040 1 slightly lower, about $2 million over what we appropriated 2 in 2004. However, you need to take into account that there 3 were also some mandatory budget reductions and -- that 4 affect the lottery and other state agencies, and we also 5 have an additional $10.9 million of unspent balances from 6 2004 that we carried forward. So for lottery operations, if 7 you net it all out, we have an operating budget this fiscal 8 year of $174 million and also a budget of $12.3 million for 9 charitable bingo operations. 10 Bingo's budget, you'll note, includes $9.9 11 million of bingo prize fee allocation money that passes 12 through the agency, so their administrative appropriations 13 of two -- 2.4 million. 14 Through September lottery operations 15 expenditures have met and they are tracking on target. 16 Bingo administrative expenditures are also tracking on 17 target. Overall bingo expenditures may appear to be behind 18 target; however, that's because bingo prize fees are 19 allocated once a quarter. And so you'll see a lot of money 20 flowing out of the budget when they make that first prize 21 fee allocation at the end of the first quarter. 22 Do you have any question on the budget? 23 CHAIRMAN CLOWE: Are there any questions? 24 COMMISSIONER COX: Lee, the $10.9 million 25 FY '04 rider four money. 0041 1 MR. DEVINEY: Yes, sir. 2 COMMISSIONER COX: Help me with that. 3 MR. DEVINEY: Rider four in the general 4 appropriations act is a performance by the rider. And what 5 it says, in essence, is when our lottery sales exceed the 6 comptroller's revenue estimate we're appropriated additional 7 funds. And so we have the ability between the first and 8 second year of the biennium to transfer those monies forward 9 if they are not expended, and since -- and they were 10 realized, in this case, towards the end of the fiscal year. 11 And so a portion are being transferred forward. 12 COMMISSIONER COX: So this year we may have 13 an addition to the '04 rider four money. Toward the end of 14 the year we may be accruing some of '05 rider four money -- 15 MR. DEVINEY: That is correct. 16 COMMISSIONER COX: -- but in the same 17 fiscal year. 18 MR. DEVINEY: That's correct. 19 COMMISSIONER COX: Thank you. 20 MR. DEVINEY: And that money will be 21 expended on lottery operations or it will be transferred to 22 the Foundation School Fund as unexpended balances. 23 CHAIRMAN CLOWE: Go ahead. 24 MR. DEVINEY: Okay. I was also going to 25 give a brief report on exactly how the Mega Millions jackpot 0042 1 prize -- the winning jackpot ticket, how that's paid, how 2 that process works. The Mega Millions jackpot prize payment 3 protocol is governed by the Mega Millions finance and 4 operating procedures, which have been agreed to by all 11 5 Mega Million states. And so that's our -- that establishes 6 our guidelines. 7 The winning ticket was sold on October 8 1st. After each drawing, the Virginia lottery calculates 9 each party's share of the grand jackpot prize based on 10 sales, and that is done the first business day after -- 11 after the ticket is sold. And we also call that trade day 12 because if the -- the winning ticket is -- is a -- is an 13 annuity prize, then there is an obligation to go out and -- 14 and make a trade and purchase bonds to fund that annuity the 15 first business day after -- after the -- the jackpot ticket 16 is sold. 17 Funds from the party lotteries are 18 transferred to -- to the Virginia lottery clearing account 19 on T plus two, which is the third day after -- after the 20 ticket was sold. That was October 6th. And then the next 21 day T plus three, the Virginia lottery disburses funds to 22 the lottery or lotteries that sold the winning jackpot -- 23 the matching jackpot tickets. And then funds are available 24 the following day T plus four to pay the prize. 25 Now, typically, the winner doesn't come in 0043 1 immediately. In this case, they did. And so we were able 2 to fund, actually transfer funds to the winner's account on 3 T plus four, which was October 8th. Now, what happened the 4 day they came in, which I believe was October -- October 5 4th, is that the winner was presented with a ceremonial 6 check. And then I wanted to -- but they didn't actually 7 receive the money in their bank account until Friday, T plus 8 four, which is the quickest that process can happen. 9 It just happened that this person showed up 10 at 9:00 o'clock, you know, Monday morning. But the -- the 11 jackpot was advertised to be a hundred and one million- 12 dollar jackpot. In fact, it was better than that. The 13 sales supported a jackpot prize of $106 million. And so the 14 winner of the cash -- it was a cash value ticket, so the 15 winner received before taxes were -- for withholding -- 16 $62,000,060. 17 Now, to fund that prize, Texas's share of 18 to -- our -- our prize -- our liability to fund that prize 19 was $6 million, so the remaining $56 million was wired to us 20 from the other party lotteries that participated through 21 Virginia. So we had a nice fat wire that came in that week 22 of $56 million from the Virginia lottery to fund the prize. 23 Do you have any questions? 24 CHAIRMAN CLOWE: Lee, the claimant then, 25 and subsequently the winner, will receive good funds on 0044 1 Friday the 8th. 2 MR. DEVINEY: Correct. 3 CHAIRMAN CLOWE: Why didn't they get good 4 funds on Wednesday the 6th? 5 MR. DEVINEY: Well, the finance and 6 operating procedures, they are just -- they say that funds 7 are -- how does it read exactly. The funds should -- are to 8 be made available four days after -- the funds to pay the 9 winner, four days after -- after the drawing. That's just 10 the way the finance and operating procedures are written. 11 It may be that -- I haven't really thought 12 about if we've got money at -- in the morning, could we have 13 paid the money out in the afternoon. We just followed the 14 finance and operating procedures in this case. 15 CHAIRMAN CLOWE: So that was the procedure, 16 four days. And you're talking about working days? 17 MR. DEVINEY: Business days. 18 CHAIRMAN CLOWE: Business days. 19 MR. DEVINEY: Yeah. 20 CHAIRMAN CLOWE: So that would be Thursday. 21 MR. DEVINEY: Thursday. We've received the 22 funds on Thursday. Now, those funds could be wired in the 23 morning, but they may not arrive until -- until afternoon. 24 Also, before we produce the award, that's an overnight 25 process. And you also have the situation where, you know, 0045 1 when the award is, you know, going to be produced, the 2 comptroller will obviously run a check to see if there are 3 any -- any -- any holds, if the person owes the state any 4 money. So that's an open-eyed process. 5 CHAIRMAN CLOWE: So we were in compliance 6 with the rules. 7 MR. DEVINEY: Correct. And, in fact -- I 8 don't -- I don't know. I'm sure there have been other 9 situations where a Mega Millions ticket has been -- prize 10 has been transferred to the winner's account this quickly, 11 but this is as quick as it could have happened. 12 CHAIRMAN CLOWE: Commissioners, the reason 13 I ask about this -- and Lee and I had a lengthy discussion 14 on this -- is because the drawing was on Friday night. The 15 winner was known to themselves Friday night. I happen to be 16 here at the commission on Monday the 4th, and the claimant 17 appeared that morning. And to produce, after the claimant 18 was verified as a winner, the funds that quickly, as you 19 know from your business experience, that's very rapid, 20 particularly with the influx of out-of-state funds. You 21 said our portion was six million? 22 MR. DEVINEY: Six million. 23 CHAIRMAN CLOWE: That's a lot of money 24 moving very rapidly, and the claimant -- winner was handed a 25 ceremonial check that Monday afternoon. 0046 1 MR. DEVINEY: Correct. 2 CHAIRMAN CLOWE: And that was very rapid. 3 It was the first time we've had that kind of a pay off of 4 Mega Millions, as we all are aware in Texas, and the -- the 5 operation went very smoothly. I thought it was very 6 impressive, and that's one of the reasons I wanted to hear 7 what the procedure was in this meeting. 8 MR. DEVINEY: Well, when we joined the Mega 9 Millions game, from -- you know, from an agency standpoint, 10 we spent a lot of time thinking about and carefully 11 reviewing what these procedures were and how we would adapt 12 to fit. Because when we joined the game, the first drawing 13 I believe was on December 5th, for all we knew we might have 14 had a Texas winner on December 5th or there might have been 15 a winner somewhere on December 5th and we might have gotten 16 in a position of providing our portion of the share of that 17 prize. And we wanted to be very careful that we knew 18 what -- what we needed to do whenever a winning jackpot 19 ticket is sold and, in fact, it -- it worked the way it was 20 supposed to. 21 CHAIRMAN CLOWE: Did you see anything in 22 the process, Lee, that can be done better? 23 MR. DEVINEY: No. 24 CHAIRMAN CLOWE: You're satisfied? 25 MR. DEVINEY: I'm satisfied. Everything 0047 1 worked the way it was supposed to. 2 COMMISSIONER OLVERA: Lee, let me ask you a 3 follow-up on that. The -- the issue of a ceremonial check 4 on Monday prior to funding, is that a standard operating 5 procedure as part of any lottery? And -- and follow-up to 6 that, is -- is there any risk legally by -- by giving such 7 an instrument prior to the funds being in place? 8 MR. DEVINEY: Well, I'm usually not 9 involved when -- when winners come in. I mean, I'm 10 certainly aware of it as far as, you know, taking part in -- 11 in the presentation. I believe -- I mean, it is typical for 12 these ceremonial checks to be provided. And I couldn't 13 answer the question about if there is any legal concern, but 14 I'm assuming there are not. 15 CHAIRMAN CLOWE: For the record, the 16 general counsel is absent this morning attending court, and 17 we have a very qualified person in her stead, Ms. Diane 18 Morris. 19 And, Diane, would you help us with that, 20 please. 21 MS. MORRIS: I would be glad to. 22 Commissioners, it is standard practice and it has been for 23 years to provide ceremonial checks. As the process has 24 worked and as I understand the accounting, whatever would 25 have been or would be legal risks they are so minimal in 0048 1 that sense. We get questions all the time about, you know, 2 how soon will the money come. The money is usually direct 3 deposited in bank accounts. There's a lot of effort made 4 ahead of time to make sure we have the bank account; we know 5 where it is; it's a good bank, if you will; so it can 6 properly and very quickly receive the funds. 7 But, to your question, I'm sure there's 8 always risks to something. 9 COMMISSIONER OLVERA: Does the ceremonial 10 check have a set figure on it? 11 MS. MORRIS: Yes, sir, it will have written 12 on it the amount of the jackpot. The financial division -- 13 COMMISSIONER OLVERA: Which jackpot? 14 MS. MORRIS: Well, the financial 15 administration works with the marketing division and the 16 product -- the part -- the winner processing team. So that 17 would be the amount of the jackpot. If it's the -- and I 18 can let the marketing folks come up and talk more if they 19 would wish to. The amount is the amount that the prize was 20 at winning. 21 CHAIRMAN CLOWE: It's got the big number. 22 COMMISSIONER OLVERA: It's got the 106 23 million? 24 CHAIRMAN CLOWE: Yeah. 25 COMMISSIONER OLVERA: It would have the 106 0049 1 million. 2 MR. GREER: Yes, sir. 3 MS. MORRIS: Yes, sir. 4 CHAIRMAN CLOWE: Do you have the 106 or the 5 104, Reagan? 6 MR. GREER: 62. 7 MS. MORRIS: I think it had no cash value. 8 CHAIRMAN CLOWE: It had -- it had the net 9 which was -- 10 MS. MORRIS: Yes, sir. 11 CHAIRMAN CLOWE: -- after the choice was 12 made for -- 13 MS. MORRIS: The cash value. 14 COMMISSIONER OLVERA: This would be before 15 taxes? 16 MS. MORRIS: Yes. Right. 17 COMMISSIONER OLVERA: All right. So in the 18 event that some kind of warrant came up through the 19 comptroller's search and procedure and -- and they received 20 less than -- than what was actually on the ceremonial check, 21 would there be a problem? 22 MS. MORRIS: And to be technical with you, 23 in their mind I suppose they would say they received less, 24 but they owe -- if they owe funds and the debt is settled, 25 that amount on the check has not been reduced. That amount 0050 1 is shown going to them. They're going to pay taxes on it, 2 but they will receive a less fund. 3 MR. DEVINEY: You know, we -- we deal with 4 Harris Federal Withholding on that $62 million. 5 COMMISSIONER OLVERA: Right. 6 MR. DEVINEY: So it came to -- what -- 7 actually -- the amount actually wired to the bank was 45, 46 8 million in total. 9 CHAIRMAN CLOWE: I think this is a 10 significant process, you know. 11 COMMISSIONER COX: Sure. 12 CHAIRMAN CLOWE: When you're gathering that 13 much money from that many sources and it happens that quick, 14 from my experience in business it's not easy to just gather 15 up X number of millions of dollars and see that it gets 16 deposited in somebody's account. 17 MR. DEVINEY: Well, there is a process that 18 goes on after -- not only when there is a jackpot winning 19 anyways but after every drawing the first thing that -- 20 there are actually reports sent out that -- the night of the 21 drawing. And the next morning every party lottery confirms 22 what their sales were and also confirms their proportionate 23 share of -- of the prize liability. So we go through that 24 on a -- on a draw-by-draw basis. So if we have, you know, 25 numerous draws within the roll cycle, we always know we're 0051 1 current. We always know where we stand. We know where 2 every other party lottery stands in any event now that you 3 sell your jackpot ticket, and -- and you make that last 4 adjustment for that drawing. So the next -- the next 5 morning we -- we -- we have a -- we get a final report from 6 Virginia. Everyone reports back, and we get a final report 7 and we know what that liability is. 8 CHAIRMAN CLOWE: Commissioner, you remember 9 when we joined this game, we directed our staff to be 10 involved in many of the details and hopefully through 11 working with the Mega Millions people to improve their 12 process and -- and I think this is a good example where our 13 finance people -- I know our internal auditor has been 14 active, along with the executive director in helping Mega 15 Millions do the best job that can be done. 16 And it shows that when we had a Texas 17 winner, the money was claimed very quickly and it got paid 18 out very promptly, and that goes to the integrity and the 19 image, the honesty, if you will, of the game. And if there 20 had been a foul up there, I think that would have been 21 damage to the image of Mega Millions when it got a Texas 22 winner and there was a little bit of a surprise when that 23 claimant walked in Monday morning. 24 I -- I remember the electricity in the air 25 around here, and I just think the process was tested very 0052 1 well with that occurrence, and I'm pleased. And I want to 2 look at it in retrospect to make sure we are satisfied with 3 the way it worked and it's going to happen again positively 4 when we get the next Texas winner. 5 MR. GREER: Yes, sir. 6 CHAIRMAN CLOWE: Anything further? 7 COMMISSIONER COX: A couple of questions 8 for Lee and Reagan. 9 Lee, with all this money that is coming in 10 here and going out of here, is that going through lottery 11 bank accounts or comptroller back accounts? 12 MR. DEVINEY: It's going into the state 13 treasury. 14 COMMISSIONER COX: So we don't -- we get 15 word of it, but that doesn't actually flow through anybody 16 that kind of -- that we're responsible for? 17 MR. DEVINEY: No. It -- it -- it's -- 18 there are -- there are accounts set up for -- to handle 19 these transactions in the state treasury. 20 COMMISSIONER COX: Okay. Great. And so 21 then the controller sends 40-something million to the 22 winner's bank and 20-something million to the United States 23 Treasury, the withholding. 24 MR. DEVINEY: Right. And we actually have 25 a process -- we -- we have a relationship with -- for 0053 1 paying -- for paying winners through Bank One, but 2 ultimately the -- and they -- they pay -- they pay the 3 winner, and they're immediate -- they're immediately 4 reimbursed by the comptroller's office is how that works. 5 COMMISSIONER COX: And on the retailer 6 bonuses, the one million dollars that this Minyard Foods may 7 qualify for, are we responsible for withholding on that 8 also? 9 MR. DEVINEY: I don't know the answer, but 10 I'll find out. 11 COMMISSIONER COX: Okay. 12 And, Reagan, Chairman Clowe indicated, as 13 you had told me, that y'all were quite surprised when the 14 claimant showed up Monday morning ready to go. 15 MR. GREER: Yes, sir. 16 COMMISSIONER COX: And presumably I'm 17 guessing since he won on Friday night and shows up Monday, 18 he didn't have a lot of legal advise and he didn't have a 19 lot of accounting advise. 20 MR. GREER: Yes, sir. 21 COMMISSIONER COX: What do -- are we able 22 to do to encourage, if you will, or advise or give them a 23 piece of paper or something to help them realize that there 24 are legal and tax consequences to these -- claiming these 25 prizes? 0054 1 MR. GREER: I'll give a brief answer, and 2 then I'll rely on Diane who works directly with the 3 winners. But in the winner's packet -- which we didn't have 4 a chance to get that to him in this scenario because he 5 turned up, you know, so quickly and it was on a weekend 6 night. But in the winners packet -- in fact, Commissioner 7 Olvera and I were just going over that prior to this 8 meeting -- we do make some statements in there, give them a 9 checklist, and certainly encourage them to seek legal and 10 financial advise. 11 And we have to be very careful how we do 12 that, and it has to be on a broad perspective because we 13 don't want them to assume like we're trying to push them in 14 one direction or another. We're just basically imploring 15 them, to be frank with you, to go out and get professional 16 advice because that's such a huge amount of money. It 17 creates opportunity and a generation of wealth for their 18 families. 19 In this particular scenario, this 20 individual was not comfortable with that. And there's 21 certain things that we're able to say and certain things 22 we're not able to say. And I would like Diane to -- I know 23 that she does visit with them personally. I visit with them 24 personally to reinforce the fact that we really wanted them 25 to have a clear mind set in how they're moving forward by 0055 1 not having professional advice. I will tell you that most 2 of the time they do, and Diane works directly with the 3 attorneys and the CPAs to ensure that works through. 4 If they call in, that's a part of Sylvia's 5 job in the -- in the winner's specialty position that she's 6 in to refer them to do that. And, as I mentioned, it's in 7 the winners's packet. 8 Diane, would you expound upon what you do 9 for them? 10 MS. MORRIS: I'll be glad to. And in this 11 particular instance, the word "surprise arrival," you know, 12 we use that all the time. And I like to say we're stand 13 ready to process anybody at anytime. I understand the 14 concept of the surprise and the excitement of the first Mega 15 Millions winner for us, but there is a team that is ready. 16 And at any given day if someone were to show up with a 17 jackpot and it was unannounced -- and it's called a surprise 18 arrival; that's what we call them -- we're ready and we're 19 ready to go. 20 When this ticket showed up with the folks 21 along with it, in this instance, we spent some significant 22 time. The process is that the winners liaison meets with 23 the individual that they were here to get them and they are 24 escorted to a room in the building and we spent some time 25 talking to them. Do you know it's a significant decision? 0056 1 Do you realize that you have 180 days from the date to drop 2 a claim. You don't need to be in a rush. It's significant 3 how you claim the ticket. You can choose how to claim the 4 ticket. Please consider seeking financial and/or legal 5 advice. 6 Most of the time, quite frankly, I'm an 7 attorney, but everybody tells me they don't like attorneys. 8 You know, we talk to them about how but actually there are 9 some attorneys that you might find very likeable. You know, 10 there are some that are likeable. 11 UNIDENTIFIED SPEAKER: Who? 12 MS. MORRIS: The room laughed. 13 UNIDENTIFIED SPEAKER: Can you actually 14 name one? 15 MS. MORRIS: Yeah. Well, you know, we all 16 have to end up marrying each other because that's really the 17 only way you get more attorneys in the world. You know, we 18 go -- we talk with the -- the persons about take your time. 19 There are -- there are times that we will leave folks alone 20 in the room and say to them, you know, visit amongst 21 yourselves. Take your time. It's a significant decision. 22 It's like everything else in life, though. 23 Everybody -- you know, adults are adults 24 and it's their choice, and we let them know it is absolutely 25 your choice. We are not going to second guess them. We are 0057 1 not going to require things. If anything, I think the 2 processing team is very akin to just slowing it down and 3 relax. Just slow down. But they make their decisions and 4 this prize winner did. So we are ready, and we stand ready 5 to process. And we sure did that afternoon. We proceeded 6 and processed the ticket. 7 COMMISSIONER OLVERA: And, Diana, I think 8 that's to be commended. It says that we must respect their 9 decision. It is not our role to give legal advice. They 10 are not our clients, and we should not undertake that. On 11 the same token, we do want to offer that option to them but 12 we must, you know, balance that line and respect their 13 decision. 14 MS. MORRIS: Yes, sir. And -- and I have 15 to tell you from a personal point of view, I say the word, I 16 am not your attorney, to them. 17 COMMISSIONER OLVERA: Good. 18 MS. MORRIS: And it -- it's very clear. 19 I -- I think it's very clear with the folks. 20 CHAIRMAN CLOWE: Commissioner Olvera, I've 21 sat through the briefings that some claimants have 22 received -- and that's the term that they're identified with 23 prior to them being qualified as a winner at this game -- 24 and I can tell you from that personal experience, I think 25 our staff does a really good job of walking right down the 0058 1 middle of the line and being of assistance to these folks 2 and they need assistance but not giving them legal advice or 3 not giving them financial advice. 4 And I can tell that you where Diane is 5 normally a very chatty person, she went by me Monday morning 6 on the way to meet that claimant and didn't even say good 7 morning and I -- and I knew there was something afoot when 8 that happened and she was all business. The team was 9 ready. They were ready to deal with the early arrival, and 10 that's a -- an important aspect of all this. 11 I'm glad we've had this decision, and I was 12 always particularly intrigued by the financial transactions 13 and wanted Lee to cover that in detail with us because, 14 again, it all goes to the validity and the integrity of what 15 we're doing here. If, you know, we ever -- like a bank, we 16 never have to say, well, you know, we're not ready to deal 17 with a claimant. That -- that's just unacceptable. We've 18 got to be ready on point, and our group who is in charge of 19 it performed very well. First out of state winner, the 20 first time in the history of the lottery have we ever drew 21 50 some-odd million from ten other states in to pay off a 22 Texan. 23 MR. DEVINEY: Just as an anecdote, I think 24 somebody else tried to -- tried to contribute and we 25 actually -- this is just anecdotal. We actually got a -- 0059 1 another state sent a wire to Texas, the treasury. Paula 2 said, were you expecting some money from Vermont. And we 3 said -- thought about it a second and said, no, they're not 4 Mega Millions. You better send it back. We wish it was. 5 CHAIRMAN CLOWE: Thank you, Lee. 6 MR. DEVINEY: Sure. 7 CHAIRMAN CLOWE: I think we've come to a 8 good time to have a short break. Let's just take about a 9 ten-minute break here and we'll come back promptly at about 10 9:27. 11 (Recess.) 12 CHAIRMAN CLOWE: We'll begin now with Item 13 Number VI, report possible discussion and/or action on 14 lottery advertising and promotions. 15 COMMISSIONER OLVERA: One second, Robert, 16 please. 17 Are we ready now? Okay. 18 CHAIRMAN CLOWE: Did we have a mishap? 19 COMMISSIONER OLVERA: Yes, we did. 20 CHAIRMAN CLOWE: Robert. 21 MR. TIRLONI: Good morning again, 22 commissioners. 23 For the record, I am Robert Tirloni, the 24 on-line product marketing coordinator for the Texas 25 Lottery. I will be giving you an update on our advertising 0060 1 and promotions. As of right now, both DDD Dallas and the 2 King Group are off air in terms of TV and radio ads. DDD 3 Dallas will be begin their next flight on Monday, October 4 25th, with their scratch stans campaign. This TV and radio 5 campaign will focus and support on -- and support the 6 commission's scratch-off product. We're hoping that we have 7 as much success with the scratch stans campaign as we had 8 with the recent jackpot campaign. 9 The King Group is also off air at this 10 time. Their next flight won't begin until mid November on 11 the 22nd. And they will feature their right now campaign 12 and that also focuses on scratch-offs. And -- and the main 13 focus of that campaign beginning in mid November will be on 14 the upcoming holiday games. 15 In terms of promotions, Commissioners, I 16 have very good news. The State Fair of Texas concluded on 17 October 17. And we played a very big role at the State Fair 18 of Texas every year. In 2003 the Texas Lottery sold just 19 under 394,000 dollars' worth of tickets. And this year in 20 2004 we sold 484,000 dollars' worth of tickets, so that's an 21 increase of approximately $90,000 or 23 percent. We are 22 finalizing some spreadsheets that will show the sales by 23 product, by day, and we will have that in your notebooks for 24 you next week. 25 And we're -- we've been looking and 0061 1 thinking about ways that we might collect demographic 2 information from lottery players at next year's state fair, 3 so we just wanted to let you know that we were starting to 4 think about that and look into how we can make that happen. 5 And that concludes my report. I would be 6 happy to answer any questions that you might have. 7 CHAIRMAN CLOWE: Reagan, do you have any 8 comments? 9 MR. GREER: I'll have a few things to add 10 to that during my report but not at this time. 11 CHAIRMAN CLOWE: Why don't you go ahead and 12 make the comments that you had had -- that you might make as 13 a result of our conversations about Ipsos Reid, D -- and 14 DDD -- 15 MR. GREER: Great. 16 CHAIRMAN CLOWE: -- in light of the agenda 17 item. I think it would be appropriate. 18 MR. GREER: Well, Robert touched on the 19 fact that the end of his report there that we were looking 20 at some demographic opportunities. And certainly as we 21 discussed last month, Ipsos Reid has been a part of those 22 conversations over time. 23 Through a letter that we received through 24 Mike Fernandez and some other things that have taken place, 25 Gary and I have had a visit recently and we were going to 0062 1 invite Ipsos Reid to come to one of our commission meetings 2 to discuss some of the issues that were outlined in that 3 letter. There was four specific elements or projects that 4 they had been doing and to be able to answer and analyze 5 some questions that we've had over time, I think to get a 6 better feel for what it is that they do and offer the Texas 7 Lottery. 8 So the chairman and I had discussed that 9 and I wanted to bring it to the -- the full commission body 10 to let you know that we are putting that on our future 11 meeting schedule and look forward to coordinating that with 12 them. 13 CHAIRMAN CLOWE: And, Commissioner Cox, you 14 got my attention with a remark that you made in a recent 15 meeting that expressed your lack of satisfaction in this 16 area with results that are forthcoming. And then I got a 17 copy of this letter from Ipsos Reid that I think was 18 directed to Mike Fernandez. 19 MR. GREER: Yes, sir. 20 CHAIRMAN CLOWE: And you were kind enough 21 to send it to me, and we had a lengthy discussion about it. 22 My thinking is with your background, 23 Commissioner Cox, you have a feeling that we yet know 24 everything we need to know about the player and I think that 25 I picked up on that and I'm concerned about that. And I see 0063 1 you drinking a Coca-Cola this morning. I read in the Wall 2 Street Journal, I think it was Wednesday morning, that coke 3 had introduced this C2 product and it was a bust. And I 4 polled our staff when I came in here Wednesday morning, and 5 I only found one C2 drinker and he loves it. But Coca-Cola 6 is a tremendous R & D company, and they've made two busts in 7 recent time. They fell back and recaptured the old Coke 8 market with Classic Coke and now they've -- they've 9 announced that the C2, after all the R & D that they do, 10 isn't a success and they're going to have to do something 11 about it. And they've got some loyal drinkers in that 12 product that they don't want to discontinue it. 13 Well, we're doing three and a half billion 14 dollars a year in business here and you have unsettled me 15 about the depth of our research and the knowledge we have 16 about our consumers. And so that's the conversation that I 17 had with Reagan and Gary and others here and I said let's 18 have a work session with Ipsos Reid where the commissioners 19 can sit in on that and hear what they have to say and get 20 some understanding and maybe some satisfaction about the 21 product that's coming to us. 22 It was pointed out at the meeting that that 23 firm doesn't do the demographics, though. That's an 24 entirely different thing. But they work together, and they 25 feed off of each other. And I think if we have an area 0064 1 where we have a lack of complete knowledge, and there may be 2 more than one, this is the area that I'm most unsettled 3 about. I want to know more about our player. And I think 4 we have a potential because of where we rank on the per 5 capita sales with other states. 6 COMMISSIONER COX: Good. 7 CHAIRMAN CLOWE: And I think Robert made a 8 good point this morning with his presentation that combining 9 Lotto Texas and Mega Millions we're the third state, but 10 we're not way up there in other per capita. And it just -- 11 you know, I see something there that I can't get my hands on 12 and I want to employ these people that we're working with to 13 help us understand how to reach out to those players and 14 give them what they want. 15 We've got a three and a half billion-dollar 16 a year monopoly here, and there's no price competition. And 17 if you just think about a business position to be in, that's 18 fantastic. No price competition and a monopoly and if we 19 just know more about our consumer, gosh, we could do 20 better. And I think that's part of our responsibility to 21 the state in a positive and a wholesome way, not influencing 22 anyone improperly or reaching out to the wrong people. You 23 know, we -- we have those constraints and guidelines we'll 24 certainly adhere to. But we just don't know enough about 25 the player. 0065 1 So, Commissioners, if you-all are willing, 2 or Reagan and Gary want these people to make a presentation 3 to us first. But then I would like to suggest maybe a work 4 session where we could get into it and really talk with 5 these people and end up with a better understanding and 6 maybe improve our product. 7 MR. GREER: Yes, sir. 8 COMMISSIONER COX: I have long been 9 concerned about the fact that we spend over 30 million a 10 year on advertising, marketing research, et cetera, and 11 nobody can tell me what the benefit is. And while I'm sure 12 that some of the market research work that is done is good 13 and valuable, there's some of it that no one here can tell 14 me what we do with it. 15 Ipsos Reid gathers these people into these 16 little clusters that it has clever names for, and I have yet 17 to find anybody that knows what -- what we're doing with 18 that information. So maybe they can tell us what we should 19 be doing with it, and then we can decide whether we want to 20 continue to do that or not. 21 Reagan, the other thing I would ask that we 22 do, Professor Huff and Doctor Jarrod are doing some 23 wonderful work -- 24 MR. GREER: Yes, sir. 25 COMMISSIONER COX: -- in this area. I 0066 1 would ask that they be invited to attend that meeting as 2 well -- 3 MR. GREER: Okay. 4 COMMISSIONER COX: -- and hear what Ipsos 5 Reid is doing because they can give us some expert advice on 6 how valuable that might be, how it might be more valuable, 7 how we might use it, et cetera. 8 MR. GREER: Yes, sir. And there -- there's 9 an ongoing study that working with us right now to identify 10 some issues and I think that would be very appropriate to 11 follow up on. 12 COMMISSIONER COX: Okay. 13 CHAIRMAN CLOWE: And I see the King Group 14 is here this morning. They should be invited or DDD because 15 those are all interrelated organizations. 16 Counselor, as long as that's in a work 17 session is in compliance with good practice? 18 MS. MORRIS: Yes, sir. 19 CHAIRMAN CLOWE: Okay. 20 MR. GREER: I think that would be very 21 productive. Thank you. 22 CHAIRMAN CLOWE: Reagan, since we're on the 23 subject and -- 24 MR. GREER: No. That's great. Good 25 timing. 0067 1 CHAIRMAN CLOWE: Anything else? 2 MR. GREER: No, sir. 3 CHAIRMAN CLOWE: Anything further, Robert? 4 MR. TIRLONI: No, sir. 5 CHAIRMAN CLOWE: Thank you. Next item VII, 6 report possible discussion and/or action on the 78th and/or 7 79th legislature. 8 Ms. Trevino, good morning. 9 MS. TREVINO: Good morning, Commissioners. 10 For the record, I'm Nelda Trevino, the 11 director of governmental affairs. As reported to you at the 12 last commission meeting, the senate finance committee 13 chaired by Senator Steve Ogden was conducting hearings to 14 review state agencies' legislative appropriations requests. 15 On October the 5th our agency made its 16 appearance before the committee to present the agency's 17 LAR. Chairman Clowe, Reagan Greer, and Billy Atkins 18 provided testimony at the hearing. The material included in 19 your notebook which summarizes our agency's request was 20 provided to the committee prior to our agency's appearance. 21 Additionally we have provided the committee 22 with subsequent information that was requested at the 23 hearing. We are still awaiting the issuance of a house 24 licensing and administrative procedures interim committee 25 report and other committee reports, and we will keep you 0068 1 apprised of committee recommendations when they become 2 available. 3 Also included in your notebook is a listing 4 of legislative dates of interest and I want to bring these 5 dates to your attention to specifically note that prefiling 6 of legislation for the 79th legislature begins on November 7 the 8th. And the 79th legislature is scheduled to convene 8 on Tuesday, January 11th, 2005. 9 The governmental affairs division staff 10 will continue to utilize Texas legislative service as a 11 management tool for tracking and monitoring legislation. 12 Lastly, the governmental affairs staff along with Reagan and 13 Billy and several other agency staff attended a legislative 14 communications conference that was held on October 7th. The 15 conference was sponsored by strategic partnerships and the 16 University of Texas LBJ School of Public Affairs. 17 Several members of the legislature and 18 legislative staff made presentations, very informative 19 presentations, and I believe those of us who attended found 20 the conference to be very useful and beneficial. 21 This concludes my report and I'll be happy 22 to answer any questions. 23 CHAIRMAN CLOWE: Are there any questions? 24 COMMISSIONER COX: No, sir. 25 CHAIRMAN CLOWE: Thank you, Nelda. 0069 1 Next Item Number VIII, consideration of and 2 possible discussion and/or action on the external and 3 internal audits of our reviews relating to the Texas Lottery 4 Commission and/or the internal audit department's activity. 5 Ms. Melvin, good morning. 6 MS. MELVIN: Commissioners, good morning. 7 For the record, my name is Catherine Melvin, director of the 8 internal audit division. This morning I have only one item 9 to update. It is regarding the internal audit -- thank you. 10 This morning I have only one item to 11 update. It is regarding the internal audit on Lotto Texas 12 jackpot prize winner awards. In the audit notification or 13 engagement letter I issued on September 25th, I stated that 14 I anticipated a report to be released in December. Based on 15 audit work performed thus far and in consultation with the 16 financial administration division staff, I am anticipating 17 that report will be released the week of December 13th. 18 However, please be assured we are working on a very 19 aggressive schedule and will strive to provide the report 20 sooner if possible. 21 I would also like you to be aware that the 22 agency has received a request from a legislative office to 23 provide a report by -- by December 1st. Because of this 24 request, it is my intent to provide information regarding 25 the audit by the date requested. However, the final report 0070 1 will proceed on schedule. Unless this commission advises 2 otherwise, I am proceeding without a change on our original 3 scope for this audit. 4 And that concludes my presentation. 5 CHAIRMAN CLOWE: Are there any question 6 questions? 7 COMMISSIONER OLVERA: No. 8 CHAIRMAN CLOWE: Commissioners, the request 9 has come to our internal auditor for an earlier presentation 10 of this audit and we want to be responsive to that office. 11 And at the same time, I'm concerning about the mandate the 12 commissioners gave the internal auditor, and I do not want 13 to compromise that professionalism or in any way impinge on 14 what needs to be done. So my hope is in her report what 15 she'll be able to do, she's telling us, is to give the 16 legislative office at the date that they need what 17 information she has, for good reason, to consider any help 18 they might give the Lottery Commission by way of 19 legislation. 20 I presume she'll be responsive to that 21 request, but at the same time she will continue and finish 22 the audit completely and to her satisfaction so that she can 23 render it to the commission as we have requested and she 24 needs more time to do that. I think that meets the need of 25 the legislative office and meets the needs as directed by 0071 1 the commission and that's just a little fuller explanation 2 of what she has reported. 3 COMMISSIONER COX: So if I understand, 4 Mr. Chairman, you understand the request to be, one, that 5 is, in effect, saying if there is some problem with the law 6 that's causing the difficulties over there with determining 7 jackpots or the like, tell us about it so we can get that in 8 the hopper. 9 CHAIRMAN CLOWE: In a general sense, that's 10 exactly right. 11 COMMISSIONER COX: Okay. Good. 12 CHAIRMAN CLOWE: And we want to be 13 responsive to that, but at the same time, I'm very mindful 14 about instances where management gets involved in audits and 15 impinges on the work and they in some way affect the outcome 16 which destroys the validity of an audit. And -- and I want 17 to safeguard the independence and the correctness and 18 professionalism of the internal auditor in fulfilling our 19 direction to her, and I have great confidence in her being 20 able do that. So I -- I think what we're saying here in her 21 report is we're going to meet the needs of everyone as best 22 possible and a result will be a product that we can rely on 23 entirely. 24 MS. MELVIN: Thank you, Commissioners. 25 It's much appreciated. 0072 1 CHAIRMAN CLOWE: Thank you. Next Item IX 2 consideration of and possible discussion and/or action on 3 the agency's business plan. 4 Mr. Anger. 5 MR. ANGER: Good morning, Mr. Chairman and 6 Commissioners. 7 For the record, my name is Michael Anger, 8 and I'm the lottery operations director. I'm here to give 9 you a brief report on the business plan. 10 As a follow-up to the discussion that took 11 place at the September 8th commission meeting dedicated to 12 review the business plan, we're concluding work on doing 13 some revisions to the business plan related to that 14 discussion, specifically, action plan three related to the 15 internal audit area. 16 Catherine Melvin has been overseeing work 17 to revise that action plan and also Billy Atkins has been 18 working on action plan six, related to the bingo annual 19 report. And it's my understanding from both of them that 20 they have concluded their work in that area. So we're 21 finalizing a draft and we intend to give that to executive 22 management next week for their review and it's hopefully 23 going to be possible to bring the final plan for your review 24 and final discussion at the next commission meeting. And 25 that concludes my report, I would be glad to answer any 0073 1 questions that you have. 2 CHAIRMAN CLOWE: And, Commissioners, 3 Counselor, it's appropriate and correct under the business 4 plan. We had a discussion in our work session about the 5 bingo advisory committee and I've had some lengthy 6 conversations with Billy Atkins about those discussions that 7 came up and the possibility of a joint session and what 8 might or might not result from that. And if it's 9 appropriate, I would like to update the commissioners on 10 that as part and parcel of this business plan. 11 Commissioner Cox, you expressed, I think, a 12 valid comment that you didn't want to hear the same old 13 thing again. Billy talked to the chair of the BAC and I 14 think she shared in -- in your feeling about that and yet 15 we're all striving for something that will move us ahead in 16 the performance of the BAC as an advisory group to the 17 commission. She wanted to poll the members of the BAC and 18 get their feeling, which I think really makes good sense. 19 COMMISSIONER COX: Sure. 20 CHAIRMAN CLOWE: And then the next meeting 21 of that group is scheduled on November the 17th. 22 Am I right on that, Phil? 23 MR. SANDERSON: Yes, sir. That is correct. 24 CHAIRMAN CLOWE: As I thought I would 25 appear before the BAC and try to help them understand where 0074 1 the commission was, as I understand it. And, Commissioners, 2 I invite either one or both of you-all to do so and I can -- 3 either you can go first and leave the room and then I'll 4 come to -- you know, we can work it out logistically. So we 5 don't have a meeting of the commission at that time, but I'm 6 here to express what I think is the commission's concerns 7 about the BAC to them directly and get their input about 8 whether or not a joint meeting would be beneficial or not. 9 We -- we voted to extend the BAC for one 10 year. It's coming up in August, I believe. 11 Is the date correct, Phil? 12 MR. SANDERSON: That is correct. 13 CHAIRMAN CLOWE: And I think now is the 14 time to be doing what we can do to energize that group and 15 make up our minds how we're going to vote on that in August 16 of '05. I don't want to come to that meeting and say, well, 17 I'm going to -- I'm going to vote on some motion that might 18 be made and I haven't really felt like I was involved. I 19 want to be involved and make a best effort well ahead of 20 that time. So I would invite you to know that I've had 21 those discussions with Billy about my needs or my perceived 22 wants for the BAC to be a more active advisory group and 23 help the bingo industry. And then I would like to invite 24 you to give what your thought would be aware of what we 25 talked about. And if you would like to attend the BAC 0075 1 meeting, then we'll have the counselor move us in and out of 2 the rooms and keep us apart so that we're in compliance with 3 the law. 4 It's November the 17th? 5 MR. SANDERSON: Yes, sir. November 17th. 6 CHAIRMAN CLOWE: And then, Phil, if you'll 7 have -- if you would keep the commissioners advised of how 8 that's developing as we move towards that date, I'll 9 appreciate it. 10 MR. SANDERSON: Yes, sir. I'll do that. 11 And I believe you did talk with the -- the chair Suzanne 12 Taylor yesterday, if I remember, yesterday morning. And we 13 plan to have it as an agenda item. 14 CHAIRMAN CLOWE: Good. Anything further? 15 MS. MORRIS: I have something, 16 Mr. Chairman. You said the word "poll," and I'll just say 17 that as an attorney, I did have discussions with -- 18 CHAIRMAN CLOWE: You're right. That was a 19 bad choice of words. 20 MS. MORRIS: It's just an ugly word. 21 CHAIRMAN CLOWE: Okay. And -- and you will 22 involved in that process. 23 MS. MORRIS: And they will be 24 complying with -- yes, sir, I was. And they will be 25 complying with the Open Meetings Act. 0076 1 CHAIRMAN CLOWE: Right. Thank you for 2 that. They were not voted. Bad choice of words. 3 Good Counselor. Good counselor. 4 Good job. Thank you, Michael. 5 MR. ANGER: Thank you. 6 CHAIRMAN CLOWE: The next item -- I'm not 7 quite clear. Is there -- I think the commissioner has 8 spoken more than once about their feeling about contract 9 negotiations being in the open. 10 COMMISSIONER COX: Yeah. 11 CHAIRMAN CLOWE: Is there a contract 12 issue? 13 MS. MORRIS: No, sir. Staff would request 14 that this issue be passed -- 15 CHAIRMAN CLOWE: Okay. 16 MS. MORRIS: -- this item. 17 CHAIRMAN CLOWE: That helps priority. 18 Commissioners, with your permission, I'm 19 moving right along. There are some items I would like you 20 to finish on the public agenda, and I think we'll still have 21 time. 22 Commissioner Olvera, your departure is 23 about 11:30. Is it not? 24 COMMISSIONER OLVERA: 11:15. 25 CHAIRMAN CLOWE: 11:15. And if you are all 0077 1 right with it, I think we can cover the public agenda and 2 get that done. 3 Let's just go to Item Number XIV, report of 4 the executive director and/or possible discussion and/or 5 action on the agency's operational status, FTE status, and 6 retailer forums. 7 Mr. Greer. 8 MR. GREER: Yes, sir. 9 Commissioners, this morning I do have a 10 number of issues that I want to update you on. The first is 11 I know that you aware of because we spoke with each of you 12 individually. Technical difficulties were a part of our 13 drawing process where the drawing machine on the Wednesday, 14 October 13th drawing, the drawing machine prevented the live 15 broadcast in reference to the Lotto Texas game and I did 16 want to update you on that scenario. The drawing was 17 completed after the live broadcast in accordance with 18 pre-established Texas Lottery Commission drawing procedures, 19 and the numbers selected were certified by the independent 20 auditor, Davila, Buschorn & Associates, P.C. 21 The cause of the machine malfunction has 22 been determined by the machine manufacturer, and the 23 appropriate maintenance has been performed. The drawing 24 machines will checked again next month as a part of a 25 regularly scheduled preventative maintenance program. As 0078 1 noted in the media advisory that we issued last week, this 2 was the first time in nearly 12 years of Lotto Texas 3 drawings that this sort of an incident has occurred, but I 4 want to emphasize that at no time was the security or the 5 integrity of the Lotto Texas drawing or the Texas Lottery 6 game compromised. 7 The agency has developed extensive 8 procedures to promote and ensure the integrity, security, 9 honesty, and fairness of all lottery drawings. I want to 10 commend the agency staff. Some of them are here with us 11 this morning, Cochita and Mike specifically, all the work 12 that they did to follow those procedures and that they moved 13 forward in a prompt and professional manner to respond to 14 this issue. 15 Secondly, I want to pass out to each of 16 you -- pass that, please. I want to pass out to you the 17 fact that we are currently participating in an amber alert. 18 This is something that's been ongoing, but we are on under 19 an amber alert right now in this commission meeting. I 20 wanted you to be aware of that. What I've handed you is 21 what individuals in our over 16,000 retailers across the 22 state are able to get from our lottery machines to assist in 23 this abduction. We are working directly with the Texas 24 Department of Public Safety and the Houston Police 25 Department. This message is on our LED screens and on our 0079 1 general communicative aspects of what goes on on the lottery 2 machine at the top. And this is a very positive thing that 3 the lottery is involved in, and I'm proud to be a part of 4 this and I want you to have a copy of that. 5 COMMISSIONER COX: Reagan, what happens -- 6 at the Randalls that I've shopped at, I've seen these up on 7 the courtesy booth. Is that what happens -- 8 MR. GREER: Yes, sir. 9 COMMISSIONER COX: -- at most places? 10 MR. GREER: The instructions to the -- to 11 the retailer is that they are to post that. And because the 12 message is going across, the individuals are exposed to it. 13 And then they have copies, which this morning we had a 14 limited number of copies, available to the individuals on 15 their way out if they ask for it. 16 More than anything else, it's an awareness 17 that we are creating an opportunity for individuals to take 18 information with them and take a look, you know, as they're 19 driving down the highway or wherever it is that they see a 20 car or the child that matches the description. 21 COMMISSIONER COX: Do we have any kind of 22 follow-up that the GTECH representatives check to see if our 23 retailers are actually doing this? 24 MR. GREER: Yes, sir. We've had a couple 25 of these. I think is our sixth or eighth one, and I'll give 0080 1 that specific information for you. It kind of slips my mind 2 at the moment. But we continually make the retailers aware 3 of the fact that this may happen at any given moment and 4 give them the information that they need, and there's a 5 little checklist of things that they do. There is a card 6 that they know how to print out X number of these, put them 7 in the box in the front, make sure that the message is out 8 on the screens properly. And we do have a follow-up that is 9 in place in that program. 10 COMMISSIONER OLVERA: Diana, with your 11 permission, can Reagan read this in the commission into the 12 record? 13 MS. MORRIS: Oh, yes. 14 MR. GREER: That's a great idea. Thank 15 you, Commissioner. 16 An amber alert has been issued where a 17 child was abducted. It's one child. The suspect is by the 18 name of Avelino Alvarado-Martinez. Race is -- is white. 19 The age is 31. The sex is male. I would question that. 20 That sounds like an Hispanic name. 5 foot, 8 inches, 200 21 pounds is the individual. The vehicle is a 1993 Chevrolet 22 Silverado pickup, extended, light brown in color Texas. 23 License plate, Texas VS2034. The child that is in question 24 is Jesus Martinez-Alvarado. The age is four. The sex is 25 male. Eyes are brown. Hair is black, and then the 0081 1 information at the bottom is if there is any information on 2 this, to call the Houston Police Department. And it gives 3 the phone number, (713) 308-3931. 4 CHAIRMAN CLOWE: And in regard to that, who 5 gives us that information? 6 MR. GREER: Department of Public Safety. 7 We coordinate directly with them. And this is a statewide 8 amber alert. A lot of times people will ask, well, you know 9 I heard one on the radio or something in my particular area, 10 but it's not until the Department of Public Safety gets 11 involved in the process and gives us the alert that it goes 12 out over our machines. 13 CHAIRMAN CLOWE: But I heard you had a 14 question here about the description. And that would be 15 coming from the -- 16 MR. GREER: Yes. 17 CHAIRMAN CLOWE: -- DPS so... 18 MR. GREER: This is specifically 19 information we were given. I'll question that and ask that 20 we follow up on that. Obviously the name on this -- 21 CHAIRMAN CLOWE: You don't need to go into 22 it. 23 MR. GREER: Yes, sir. 24 CHAIRMAN CLOWE: You get it from the DPS at 25 this point. 0082 1 MR. GREER: Yes, sir. Yes, sir. 2 CHAIRMAN CLOWE: Okay. 3 MR. GREER: Thank you for clarifying that. 4 CHAIRMAN CLOWE: Okay. 5 MR. GREER: We go directly on the 6 information that we're given through DPS. 7 COMMISSIONER COX: And, Reagan, have the 8 authorities caught anybody specifically based on input from 9 somebody who got our data. 10 MR. GREER: We're not aware of that. A 11 number of the amber alerts that we've been involved in have 12 had successful endings, in a positive way. The child came 13 back okay. It's -- it's one of those scenarios that's hard 14 to measure, but I'm sure that when data comes we'll be aware 15 of it because they will say I got the information through, 16 you know, the Texas Lottery ticket. And I look forward to 17 that day. That has not happened at this point, but the fact 18 that the message is out all the way, you know, the across 19 the state with all these retailers that we work with -- the 20 retailers like being a part of this too because it's a 21 positive community outreach opportunity that they don't get, 22 you know, regularly. And it's being provided through the 23 Texas Lottery Commission. It's -- it's a part of being a 24 team player with the State of Texas and that's significant. 25 Lotto Texas update, I look forward to the 0083 1 Watauga -- is that how you say it, Robert? 2 MR. TIRLONI: It's Watauga. 3 MR. GREER: Watauga. Sorry. Area soon to 4 present a retail bonus check potentially to an eligible 5 retailer up there for 180,000. The cash value option was a 6 part of that ticket in reference to some of our other 7 conversations of note. And the cash value amount on the 18 8 million-dollar -- 18 million-dollar jackpot was $11.2, plus, 9 million. 10 We have been contacted by the winning 11 ticket holder. They are seeking legal and financial advice, 12 to my knowledge. The ticket was sold at a 7-Eleven, and on 13 that particular drawing around 58,875 additional winning 14 tickets sold ranging from 26,950 down to two dollars. 15 We talked a lot about Mega Millions today 16 and the fact that we did have a winner there. I just wanted 17 to reinforce that also on that evening we have five second 18 tier winners. One of those Megaplied. So October 1st was a 19 great day for the Mega Millions game in the state of Texas. 20 And we experience 81,697 winning tickets that night, and I 21 look forward to going and presenting the retail bonus 22 check. We'll let you know on that when that's going to took 23 place here in the coming weeks. 24 We have a number of great new games that 25 are coming out. Our first 30-dollar game will be holiday 0084 1 millions wishes, and it will start on October the 27th. It 2 has a top prize of $2 million, and the overall odds of the 3 game are 1 in 2.17. 4 Commissioner Cox, specifically, this is a 5 game we will definitely be monitoring. The around the table 6 game with that 25-dollar roll has been extremely 7 successful. Retailers are excited about this 30-dollar 8 game. We're stepping out with this, and we'll bring you an 9 update after the ticket has been out for a while and let you 10 know how sales are going. 11 Nelda mentioned that on October the 7th I 12 attended the legislative communications conference. That 13 was very beneficial. Also last week, I was at the state 14 fair, was excited about the record 22 percent increase in 15 sales. I wanted to thank our retailer through that process 16 who did a great job. Swift T out of the Dallas area. They 17 were extremely busy. There's a lot of excitement that goes 18 with that show, and as a part of that, the -- the M.C. of 19 the show was giving out scratch-off tickets which draws 20 people's attention to a number of new games and they have to 21 go over and spend 484,000 dollars' worth of excitement level 22 there and that's pretty good. 23 I was also up there to present a retail 24 bonus check at Jack's Grocery in Dallas. There was a nine 25 million-dollar jackpot sold there on July the 7th. And 0085 1 there was a happy retailer that received a 90,000-dollar 2 check from the Texas Lottery Commission that day, and I was 3 proud to be a part of that. 4 Yesterday I spoke at a GTECH district sales 5 manager's conference. I had some good inputs from the 6 D.S.R.'S that are out in the field, with some issues that 7 they had that were brought to my attention and that was 8 good. We are currently taking part in the state employee's 9 charitable campaign. We are well on our way on our 60 10 percent participation goal within the agency. I think it's 11 significant that we do be a part of something greater than 12 ourselves, and this charitable campaign is an opportunity 13 to do that and make a difference in the community that we 14 live in. 15 We are working right now toward a training 16 program that I will be bringing forward to the directors. 17 It's a leadership training workshop, and I'll give you a 18 follow-up on that. It will focus on a number of different 19 issues, starting specifically with the opportunity that we 20 have to focus on our mission statement, how we get the word 21 out on that. 22 Legal counsel has handed me a follow-up to 23 my comment a moment ago that I would like to put on the 24 record that the -- for clarification regarding the statement 25 on Lotto Texas, it's not a winning ticket until the Texas 0086 1 Lottery Commission says so. The numbers matched, but right 2 now that's all there is. So we're waiting for that process 3 to continue to work through. Thank you, Counsel, for 4 clarifying that. We're very specific on how that follows 5 through -- 6 CHAIRMAN CLOWE: We knew what you meant. 7 MR. GREER: -- and look forward to that 8 coming up. 9 CHAIRMAN CLOWE: Claimant. 10 MR. GREER: Those are -- those are my 11 comments today. Again, thank you for the privilege of being 12 executive director and I'll keep you posted as we move 13 forward. 14 COMMISSIONER OLVERA: Reagan, a follow-up 15 to some of the issues that we discussed earlier. When 16 reviewing the winner's packet that Lottery, TLC, has in 17 place, I know that we have language inserted therein in the 18 general summary about potential private winners seeking 19 legal -- 20 MS. MORRIS: Right. 21 COMMISSIONER OLVERA: -- or accounting or 22 financial advice, but after reviewing that packet this 23 morning, it's my humble opinion that we should have a 24 separate tab. And I think you should coordinate with the 25 legal division -- 0087 1 MR. GREER: I will. 2 COMMISSIONER OLVERA: -- and marketing 3 wherein we have language that we're obviously trying to 4 offer that option to our prize winners, but on the same 5 token that we don't represent them. 6 MR. GREER: I agree. And just to follow up 7 the conversation we had with the other commissioners, just 8 so you're aware of what the commissioner and I discussed, 9 there's a checklist that is in the winner's packet of things 10 that they need to do. And we spent a lot of time when we 11 looked at this winners packet redo on how to word the 12 professional advice aspect of it. And we need to add that 13 maybe in a couple of other places to reinforce it. So I 14 will follow through on that -- 15 COMMISSIONER OLVERA: Okay. 16 MR. GREER: -- and we appreciate you 17 bringing that to our attention. 18 CHAIRMAN CLOWE: Better do what the judge 19 says. 20 COMMISSIONER COX: Reagan, on that subject, 21 are we to able to include in their packet some of the horror 22 stories that Lotto winners have been exploited. 23 MR. GREER: We don't, and I'll defer to 24 Diane to explain part of reasoning as to why we don't get 25 into that scenario. 0088 1 MS. MORRIS: Well, even when you say that, 2 how some of the lotteries have been exploited, my first 3 sense is there's a lot of rumor, there's a lot of innuendo. 4 The lottery winners as we -- we talked about, they are the 5 adults they are and they make the decisions they do. And, 6 you know, there comes a point where it's not about 7 protecting people from themselves. We can't begin to do 8 that. 9 COMMISSIONER COX: Well, I'm thinking of 10 information and education, not protection. 11 MS. MORRIS: Yes, sir. I think we could 12 beef -- beef it up on, really, encouraging professional 13 advice, financial or legal advice. Our policies right now, 14 we are not allowed any particular professionals, per se, 15 which attorney or which financial advisor. But some of the 16 lottery winners are fiercely independent and they make the 17 decisions they make, and they may regret them. 18 COMMISSIONER COX: We -- I fully understand 19 that they're going to make the decision and that needs to be 20 emphasized and emphasized and emphasized, but are we doing 21 everything we can to educate them; that is, we say, seek 22 legal advice. Do we tell them what potential benefits of 23 seeking legal advice might be and what the potential 24 consequences of not seeking legal advice might be? 25 MS. MORRIS: In a general way we do. We 0089 1 could go into more detail with them, but, again, how the 2 decisions affect them are unique as to each individual. 3 COMMISSIONER COX: Of course, they are. 4 MS. MORRIS: So we could -- we could add a 5 lot more bigger warnings or louder warnings, if you will. 6 COMMISSIONER COX: Well, I'm -- I'm not 7 talking about bigger or louder but more specific. Your tax 8 dollar could be X if you claim this as an individual and 9 0.5X if you claim it as a business partnership, and that's 10 just an example I was really just giving as a valid thing to 11 throw in there so that they have some idea of the value of 12 getting professional advice might be to them. 13 MS. MORRIS: We can look at that. 14 CHAIRMAN CLOWE: Anything further? 15 Reagan, I hope you will make available to 16 the commissioners, if they haven't already seen it, the film 17 on the ball malfunction. 18 MR. GREER: Yes, sir. 19 CHAIRMAN CLOWE: I think that's very 20 educational -- 21 COMMISSIONER COX: I have seen that. 22 CHAIRMAN CLOWE: -- the time I saw it. 23 MR. GREER: Yes, sir. 24 CHAIRMAN CLOWE: And I think if the 25 commissioners are interested, you should make that available 0090 1 to them. 2 MR. GREER: Yes, sir. 3 COMMISSIONER COX: I have seen it -- 4 MR. GREER: Commissioner Cox -- 5 COMMISSIONER COX: -- and it was very 6 important. 7 MR. GREER: Yes, sir. Mr. Cox and I spent 8 time with the individual from the manufacturer, and I'll be 9 sure that each of you get a copy of that. 10 CHAIRMAN CLOWE: You ought to learn how to 11 pronounce the name of that town before you go up there. I 12 understand they give a test. 13 MR. GREER: I will be properly schooled 14 prior to my departure. 15 CHAIRMAN CLOWE: Next Item XV, report by 16 the charitable bingo operations director and possible 17 discussion and/or action on the charitable bingo operations 18 divisions activities. 19 Good morning, Phil. 20 MR. SANDERSON: Good morning, 21 Commissioners. 22 In your notebook you have the report done 23 by the charitable bingo operations division, from Billy 24 Atkins. I would like to bring a few things to your 25 attention. First is the auditor position in Dallas is still 0091 1 vacant. We had it posted as open until filled. We received 2 15 applications, and there won't be a screening process at 3 this time. 4 Next is the BAC meeting. It's tentatively 5 scheduled for November the 17th. One of the possible agenda 6 items for that would be the nomination committee of the BAC 7 making their recommendation to fill the vacant charity 8 position that is currently open, and we are also now taking 9 nominations for the three positions whose term expires -- 10 expires in February of '05. That is the current vacant 11 position of the charity representative, another charity 12 representative, and a commercial lessor position. 13 There was a customer education for bingo 14 operator training program scheduled in San Antonio last -- 15 the 19th. We were scheduled to have the IRS portion of that 16 taped so we could present it at all the other training 17 programs that we schedule. Due to a medical emergency, the 18 IRS representative was not able to attend so we delayed the 19 taping of that segment. I've been in contact with the 20 customer education and outreach office of the IRS, and we're 21 looking at other available options that we may have to add 22 to our training program information that would be beneficial 23 to the organizations that we license. 24 Additionally in your notebook, you have a 25 time line that will be for introducing the new revised 0092 1 quarterly report for the organizations that conduct bingo as 2 well as organizations that hold a conductor and lessor 3 license. The redesign of this report is basically a result 4 of House Bill 2519 and the unit accounting portion and the 5 charitable purposes portion of that bill. Currently we have 6 that form being reviewed by internal audit on a consulting 7 basis and then also it's up in the I.T. department being 8 designed for programming under the new system. The -- one 9 of the benefits of the new report is it will also give us 10 more information and more detailed information that we can 11 report to the legislature when they ask questions about the 12 expenses and use of proceeds. 13 And, finally, I would like to inform you 14 that next week I will be attending a charitable gaming 15 regulators -- regulators round table in Prior Lake, 16 Minnesota. And Billy and I also both attended the 17 legislative briefing with the legislative session that was 18 held on October the 7th. And that concludes our report. 19 CHAIRMAN CLOWE: So regulator, regulatee, 20 player. 21 Any questions? Thank you, Phil. 22 Next Item Number XXI, public comment. 23 Ms. Dawn Nettles has asked to comment. 24 Would you come forward, please, ma'am? 25 Good morning. 0093 1 MS. NETTLES: Good morning, Commissioners. 2 For the record, my name is Dawn Nettles. I'm with the Lotto 3 Report out of Dallas. And sitting with me is -- and I only 4 ask him to come up here because you-all were just discussing 5 horror stories with winners. And the gentleman sitting next 6 to me is Juan Rodriguez and I thought if you wanted an 7 opportunity to ask firsthand about horror stories or 8 expenses as they collected as their monies, he's here if 9 you -- if you would like to ask any questions. He does have 10 some horror stories to tell us. 11 Commissioner Cox, do y'all want to hear any 12 of them? I mean, he's not going to speak. You will ask him 13 a question, and he will be happy to answer it. I know this 14 is a little unusual. 15 CHAIRMAN CLOWE: If -- he needs -- if 16 you're going to make him be available for comment, we need 17 to fill out an appearance form. And I don't believe I have 18 one for you. 19 MS. NETTLES: No. That was just a last 20 minute decision awhile ago when I was sitting there -- 21 CHAIRMAN CLOWE: Do you have any questions, 22 Commissioners? 23 COMMISSIONER COX: I will leave that to 24 your discretion, Mr. Chairman. 25 CHAIRMAN CLOWE: I think maybe if -- if a 0094 1 commissioner is interested, since this gentleman is here, 2 might want to have an individual visit with him, and -- and 3 I think that's my as soon so... 4 MS. NETTLES: Okay. It's entirely up to 5 you, but he can fill out a -- a form. I believe his 6 comments will have to do with his initial feeling of how he 7 felt when he collected the monies here but then after that, 8 the repeated phone calls, what happens to winners after they 9 leave here and they have the press. He can -- he can really 10 enlighten you-all to that. 11 CHAIRMAN CLOWE: My view is that's a 12 personal experience. And with all due respect, I would just 13 say that maybe my view is a little different from 14 Commissioner Cox about what happens after a winner leaves 15 these premises, and I want to simply say that I respect the 16 privacy of every individual and I'm -- I'm a little bit 17 concerned about getting into that. And I remained silent 18 during your questioning because you're going to be talking 19 with the general counsel's office about that. And I rely on 20 your good judgment and their good legal advice and I would 21 like to leave that there as far as any further delving into 22 that at this time on the record and invite the commissioners 23 to do whatever they want on an individual basis. 24 COMMISSIONER OLVERA: Ms. Nettles, the -- 25 the focus of my comments were that there is no legal 0095 1 requirement for citizens to do so, but we strongly urge them 2 to seek professional advice, whether it be legal or 3 financial or audit and what have you. But once they claim 4 their -- their money obviously we don't represent them. 5 If -- if this gentleman would like to write 6 us a letter perhaps to inform us of what he's gone through, 7 we can take a look at it, but it's very unusual for us to 8 start some kind of inquiry without knowing any facts. 9 MS. NETTLES: Oh, I just brought him up 10 here because of y'all's conversation, and I thought, well, 11 here I got somebody here who probably can -- can shed some 12 light on it. He doesn't have anything to say to you-all, 13 per se. He was just willing to answer any questions. 14 CHAIRMAN CLOWE: Very good. What do you 15 have, Ms. Nettles. 16 MS. NETTLES: Okay. I have several 17 comments to make today. First of all, when the slide 18 presentation earlier, with regard to Mega Millions -- and on 19 the slide I noticed that we were concentrating heavy on per 20 capita sales. And I kept watching and unless I missed it, 21 what I never saw on that slide was what the population was. 22 Per capita is based on the population. 23 COMMISSIONER COX: The number we use is 24 just a little over 22 million. 25 MS. NETTLES: Okay. A little over 22 0096 1 million is what the commission uses, right? Is that -- 2 COMMISSIONER COX: I'm sure -- I'm sure Lee 3 could tell you what exactly what the number is. 4 MR. DEVINEY: I can't tell you exactly what 5 the is, but we do periodically. And we get -- 6 For the record, I'm Lee Deviney, financial 7 administration director. And I can't tell you the number 8 off the top of my head other than to say that we do 9 periodically check with the comptroller's office and census 10 bureau and get the current population information 11 periodically throughout the year. 12 MS. NETTLES: But if I'm not mistaken, the 13 population should remain the same as you calculate the per 14 capita rate. Isn't that right? 15 COMMISSIONER COX: At -- at any given time, 16 but it changes as the population of the state changes -- 17 MS. NETTLES: Of course. 18 COMMISSIONER COX: -- over the course of 19 time. 20 MS. NETTLES: Of course. I understand 21 that. 22 Okay. This is an issue that I've noticed 23 for a pretty good while, and since I was coming here today I 24 took the October 16th trends report. And when you take -- 25 and I have copies here that I would like to show you. Can I 0097 1 give y'all each a copy? 2 CHAIRMAN CLOWE: Sure. 3 MS. NETTLES: So you can see it first hand. 4 CHAIRMAN CLOWE: Sure. And give the 5 recorder one, please, ma'am. 6 MR. GREER: Thank you. 7 MS. NETTLES: Yesterday I took the trends 8 report on pages four, five, and six, is what you have copies 9 of, and it shows you what the sales was and the per capita 10 cost. But what you see here is the population for every one 11 of the games different and that does not balance because 12 each week when they do this report -- and they -- they have 13 a number supposedly for population and it should be divided 14 into sales to give the per cap. Yet, we have population 15 here for total sales of 22.5 and since it's 22.5. But 16 they're still different numbers. And this is on the October 17 16th trends. We have 22.5 again on Lotto; 22.2 for Pick 18 Three; 22.6 for Cash Five; 23.3 for Texas Two Step; Mega 19 Millions is 21.9; and Megaplier is 23.6., when you do the 20 math on it. And that does not add up. 21 The comptroller's population forecast for 22 2004 -- just so y'all know it -- is 22,193,711. So I would 23 think that the trends coming out every week -- I -- I don't 24 understand why there's a different population figure for -- 25 for the per cap. 0098 1 CHAIRMAN CLOWE: That's a valid question 2 based on what you've given us, and we'll ask the financial 3 group to look into that. Thank you. 4 MS. NETTLES: I would really like to have 5 an answer because if you take the trends for the last six, 6 seven, or eight months and you do this same test, you'll 7 find that the population is never the same. Okay? And I 8 would also like to suggest on those, when they do the 9 reports per cap, that they ought to at least tell what 10 that's based on, what population. I would think that that 11 would be a very important part of the their presentation. 12 The next item I want to talk about is -- 13 I'm going to comment on the Mega Millions, what -- the 14 discussion that you-all had earlier about the Mega Millions, 15 how much they win, and Reagan's comment on -- with regard to 16 the jackpot was actually 106 million, not 101. The press 17 releases showed that it was 101, and I kept asking if it was 18 really 105. I still don't know for sure the amount that 19 they got, what that would actually give a return of, whether 20 it was 101 or 106. But I wanted to make one comment so that 21 you-all would know this about Mega Millions. 22 Mega Millions, the -- the rules for Mega 23 Millions states that they will pay the investment cost for 24 whatever its advertised. In other words, they pay the 25 advertised amount. They do not pay the amount that's in the 0099 1 prize pool. And in this particular case, he did not -- or 2 none of them actually have received the amount that's 3 allocated. That money is just kept. But that's in the rule 4 and we knew that going in. But I don't think you-all 5 understand that, that they only receive the investment 6 cost. And I never could get a clear picture as to what 7 investment coast they received. Did they receive it for 101 8 million, 105, or 106. The winner received 62 million. He 9 actually cleared 46 million, I believe, but I wanted to 10 comment on that. 11 And, Reagan, so you don't get yourself in 12 trouble, I have to say this. I'm from Dallas. You 13 pronounce it Watauga. 14 MR. GREER: Thank you. 15 MS. NETTLES: Watauga. Okay. So when you 16 go down there, that little town does have a thing about what 17 they're called see. Okay. 18 MR. GREER: Great. Thank you. 19 MS. NETTLES: So it's Watauga. 20 Watauga. 21 CHAIRMAN CLOWE: Most little towns in Texas 22 have that thing. 23 COMMISSIONER COX: Yes, they do. 24 MS. NETTLES: Well, and this one really 25 does. Okay? This one really does. 0100 1 Okay. My next item I want to cover with 2 you-all is a complaint with regard to problems that I have 3 with open records. And I'm going to cite you a few examples 4 so that you know. 5 CHAIRMAN CLOWE: Ms. Nettles, I -- I really 6 don't think that this item on our agenda is for matters of 7 individual interest. It is reserved, in my mind, as 8 chairman, for matters of general interest, and I would ask 9 you to write me or write the executive director where you 10 have a personal item that you want to bring to our attention 11 and reserve for this period comments of a general nature. 12 Would you be respectful of that, please? 13 MS. NETTLES: Commissioner Clowe, I would 14 like to respond to that remark by saying that the Open 15 Meetings Act says that when a personal -- when an agency 16 offers public comment, that you have no way of controlling 17 what they say when they comment. 18 CHAIRMAN CLOWE: Well, I would differ with 19 you on that. 20 MS. NETTLES: Okay. 21 CHAIRMAN CLOWE: I think that's my 22 responsibility as the chair, and I intend to exercise it. 23 MS. NETTLES: Okay. Can I -- so, in other 24 words, you won't let me cite something that has been in 25 these transcripts? 0101 1 CHAIRMAN CLOWE: I've asked you to -- I've 2 asked you to write either me or the executive director, and 3 I would appreciate it if you would respect my wishes. 4 MS. NETTLES: Yes, sir. I will respect 5 your wishes. Yes, sir. 6 CHAIRMAN CLOWE: Thank you. 7 MS. NETTLES: Then I guess that's all I 8 have to say. 9 CHAIRMAN CLOWE: Thank you, ma'am. 10 Is there anyone else wishing to make public 11 comment? 12 Commissioners, if you're ready then, I'm 13 going to move that we go into executive session. 14 MS. MORRIS: Mr. Chairman, you skipped over 15 the item for contested cases. 16 CHAIRMAN CLOWE: I did intentionally. 17 MS. MORRIS: Okay. 18 CHAIRMAN CLOWE: I -- want to reserve those 19 for after we come out of executive session so we have almost 20 an hour for that purpose. 21 At this time, I move the Texas Lottery 22 Commission go into executive session to deliberate the 23 duties and evaluation of the executive director and/or 24 deputy executive director, internal audit director, and 25 charitable bingo operations director, pursuant to Section 0102 1 551.074 of the Texas Government Code; to deliberate the 2 duties of the general counsel and security director pursuant 3 to section 551.074 of the Texas Government Code; to receive 4 legal advice regarding pending or contemplated litigation 5 and/or to receive legal advice pursuant to section 551.071, 6 paren, one, close paren, paren, eight, close paren, or paren 7 D, close paren, of the Texas Government Code and/or to 8 receive legal advice pursuant to section 551.071, paren, two 9 close paren, of the Texas Government Code, including but not 10 limited to: 11 Patsy Henry versus Texas Lottery 12 Commission; Sandy Surber, et al, versus GTECH Corporation; 13 Yolanda Garza versus S.S.P., et al; Linda McCloud versus 14 Mike McKinney, et al., James T. Jongebloed versus Texas 15 Lottery Commission; Stephen W. Hieronymus, et al, versus 16 Texas Lottery Commission and Gametech International; Felipe 17 Chavez versus the Texas Lottery Commission and Sergeant 18 Marvin J. Collins; Don McCaffety versus Texas Lottery 19 Commission; employment law; personnel law; procurement and 20 contract law; evidentiary and procedural law; and general 21 government law. 22 Is there a second? 23 COMMISSIONER OLVERA: Second. 24 CHAIRMAN CLOWE: All in favor please say 25 aye. 0103 1 THE COMMISSIONERS: Aye. 2 CHAIRMAN CLOWE: Opposed? No. 3 The Texas -- the Lottery Commission vote is 4 three to zero. The Lottery Commission will go into 5 executive session. 6 The time is 10:19 a.m. Today is October 7 the 22nd, 2004. 8 (Recess.) 9 CHAIRMAN CLOWE: The Texas Lottery 10 Commission is out of executive session. The time is 11 11:25 a.m. 12 Is there any action to be taken as a result 13 of the executive session? If not, we have one item left on 14 the agenda, I believe, Item XIII, consideration of the 15 status and possibly entry of orders in cases represented on 16 the agenda by letters A through E. 17 Ms. Morris, would you help us with that, 18 please? 19 MS. MORRIS: Yes, sir. 20 If I may, the items A, B, and C, if I could 21 take those up together. 22 CHAIRMAN CLOWE: Sure. 23 MS. MORRIS: Those are cases where -- that 24 involves a lottery retailer who failed to have funds on 25 account when the Texas Lottery Commission performed its 0104 1 electronic sweep. The SOAH judge has recommended that the 2 license be revoked. In accordance with those proposals for 3 decision we have an order that the staff requests that you 4 enter approving those orders revoking the licensee's 5 license. 6 CHAIRMAN CLOWE: So moved. 7 COMMISSIONER COX: Second. 8 CHAIRMAN CLOWE: All in favor, please, say 9 aye. 10 THE COMMISSIONERS: Aye. 11 CHAIRMAN CLOWE: The vote is two-zero in 12 favor. 13 MS. MORRIS: Mr. Chairman, the other two 14 cases are bingo cases because they have the -- you can see 15 from the identification of it. It's items D and E with 16 point -- the B is -- the initial B is after the name of the 17 docket. 18 At this point I turn it over to Sandy 19 Joseph. She is the staff attorney in the general counsel's 20 to discuss these cases. They are both involving bingo 21 licensees who failed to have -- remit the prize fees and to 22 properly and timely file quarterly reports. 23 CHAIRMAN CLOWE: And these are -- you're 24 going to talk to us, Ms. Joseph, about cases as represented 25 on the docket identified by the letters D and E. 0105 1 MS. JOSEPH: That's correct. 2 CHAIRMAN CLOWE: Thank you, ma'am. 3 MS. JOSEPH: Yes. I'm Sandra Joseph, for 4 record, assistant general counsel. These two courses -- 5 excuse me. These two cases, the SOAH judge recommended 6 upholding the commission's desire to revoke the licenses 7 because in both cases the licensees failed to remit prize 8 fees or to turn in their quarterly reports at least three 9 times in a 12-month period. 10 I do have for you substitute orders from 11 what is your notebook. It was noted that there was a 12 typographical error in finding of fact number eight in both 13 recommended orders that were offered by the SOAH judge, and 14 I have prepared orders that simply substitute finding of 15 fact number eight with a correct date of 2003 rather than 16 2004. The ALJ was aware of this and he agreed this would be 17 the proper procedure and apologized for the error. 18 CHAIRMAN CLOWE: Anything further? Are 19 there any questions? 20 COMMISSIONER COX: No, sir. 21 CHAIRMAN CLOWE: Is there a motion? 22 COMMISSIONER COX: So moved. 23 CHAIRMAN CLOWE: Second. 24 All in favor, please, say aye. 25 THE COMMISSIONERS: Aye. 0106 1 CHAIRMAN CLOWE: All opposed vote no. 2 The vote is two-zero in favor. 3 Also, I want to, in this meeting, recognize 4 the fact that Mr. Bobby Heith is among us and we are 5 certainly appreciative and thankful that he is among us and 6 we wish you continued good health. Take care of yourself 7 and follow doctor's orders. 8 MR. HEITH: I will. 9 CHAIRMAN CLOWE: Additionally for the 10 record, Commissioner Olvera departed during the executive 11 session since we reconvened, but we have a quorum so the 12 commission can continue it's agenda. 13 At this time to my knowledge, we've 14 completed our agenda. Is there any more business to come 15 before the commission? 16 COMMISSIONER COX: I would just say that I 17 miss seeing total profit. 18 CHAIRMAN CLOWE: I do too. 19 COMMISSIONER COX: Thank you. 20 CHAIRMAN CLOWE: For everyone's information 21 and unless you object, Commissioner Cox, I would expect that 22 the commission will meet in November and December and 23 continue to conduct the business of this agency, and we can 24 work around the holidays. But just for everyone's 25 information, we will maintain our schedule of meeting 0107 1 monthly through the holidays. 2 Thank y'all very much. We are adjourned. 3 The time is 11:30. 4 (Concluded at 11:29 a.m.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0108 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, Certified Shorthand 7 Reporter in and for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing before 9 the 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, true, 12 and correct computer-aided transcription of my shorthand 13 notes taken on said occasion. 14 15 Witness my hand on this 15th day of 16 November, 2004. 17 18 19 ________________________________ Shelley N. Jones, RPR, CSR #8058 20 Expiration Date: 12/31/04 Firm Registration #225 21 1801 North Lamar Boulevard Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 24 JOB NO. 041022SNJ 25