0001 1 2 3 4 ******************************************************* 5 6 TEXAS LOTTERY COMMISSION 7 PUBLIC HEARING 8 9 DECEMBER 19, 2005 10 11 ******************************************************* 12 13 14 15 BE IT REMEMBERED that a Public Hearing for the 16 Texas Lottery Commission was held on the 19th day of 17 December 2005, from 10:19 a.m. to 11:13 a.m., before 18 David Bateman, RPR, CSR in and for the State of Texas, 19 reported by machine shorthand, at the Auditorium of the 20 Texas Lottery Commission, 611 East 6th Street, Austin, 21 Texas 78701, whereupon the following proceedings were 22 had: 23 24 25 0002 1 MS. WOELK: Good morning. My name is 2 Sarah Woelk. I'm an assistant general counsel for the 3 Texas Lottery Commission. With me today is Michael 4 Anger, who is the director of the Lottery Operations 5 Division. 6 The purpose of this hearing is to receive 7 public comment on the following proposals: The 8 proposed repeal of the game rules set out in 16 TAC 9 Sections 401.304, 401.305, 401.307, 401.308, 401.312 10 and 401.315, also to consider the proposed revision of 11 16 TAC Section 401.301, which is definitions, to 12 consider the proposed new 401.304, which is the general 13 on-line game rule, and the proposed new 401.35. 14 This hearing is open to all members of 15 the public wishing to provide comments. To clarify, 16 there's been some confusion. All of the proposals that 17 are out today would not be adopted as simultaneously. 18 There are two different ways the 19 commission could go. They could either adopt the 20 package in which they repeal a specific on-line game 21 rule and adopt a general umbrella on-line game rule or, 22 instead, they might simply adopt a new Lotto Texas rule 23 with a different matrix and a few other changes. 24 The time is 10:25 a.m. on Monday, 25 December 19th. We are in the auditorium of the Texas 0003 1 Lottery Commission headquarters aft 611 East 6th Street 2 in Austin. 3 The -- there are copies of the rules 4 available. They reflect the text as published in the 5 Texas Register on December 9th, 2005. There are 6 witness affirmation forms. 7 And we have a court reporter here. So 8 before you begin comments, please identify yourself for 9 the record. 10 And do you have anything to say, Michael? 11 MR. ANGER: No. 12 MS. WOELK: Okay. So we have one witness 13 affirmation form for Ms. Dawn Nettles. And we are 14 happy to hear what you have to say. 15 Is your mike on? 16 MS. NETTLES: Yes, it is. 17 MS. WOELK: Okay. 18 MS. NETTLES: Can you hear me okay? 19 For the record, my name is Dawn Nettles. 20 I'm with the Lotto Report out of Dallas and I 21 appreciate the opportunity to come here to comment on 22 your proposed Lotto Texas rule and your repeal in 23 trying to do your conversion to the policies and 24 procedures rather than it being included in the rule. 25 I have been coming here for 10 years 0004 1 maybe, yeah, or longer. And I've had one purpose of 2 all of my visits to Austin to the Texas Lottery 3 Commission. And that is that I have attempted to get 4 fair games of chance for the people of Texas, fair 5 payouts, a guarantee that the people of Texas will 6 receive one hundred percent their share of sales. I 7 have fought for truth in advertising and for open 8 government. 9 And that has been my sole purpose. I 10 have tried to help the commission by coming here and 11 commenting on these rules. And I have never been wrong 12 on what I projected would happen to the Texas Lottery 13 as a result of the rule change that they proposed and 14 ultimately adopted. 15 And that can go all the way back to the 16 original Cash Five change where they tried to increase 17 or where they did increase from two to four draws. 18 Though I did not come to Austin to comment, I was 19 contacted by the Texas Lottery. 20 And I gave them my opinion as to exactly 21 what would happen. And that was Steve back in those 22 days. And I was not wrong. I was completely right on 23 what would happen to Cash Five in that event. 24 I have been disillusioned for years 25 because the Texas Lottery has not ever really listened 0005 1 to comment. Commissioner Clowe and I debate that back 2 and forth all the time. But the point is, is I've come 3 here and I have really said what needs to be done. And 4 nobody has ever listened. 5 The people of Texas I have -- I have 6 provided thousands upon thousands of comments from the 7 people that have been generated from my Web site. I 8 have sent them directly to you in many cases. And 9 since -- since September of 1999, the people of Texas 10 have said please don't change our Lotto Texas game. 11 Leave it like it is. 12 And at that time, Lotto Texas was a 13 six-in-50 game. It was a fair game. It had the odds 14 of right at 16 million to one with a population of 22 15 million, 21 million back then. But it was a fair game. 16 It was doing quite well, especially given what's 17 happened since the change came. 18 When the Texas Lottery changed to 19 six-in-54 back in -- July of 2000 is when it was 20 actually official and they adopted that game and began 21 playing that game, the people opposed that because they 22 did not want those odds. 23 But on that rule change, you-all went 24 from a 50-percent prize pool to a 55-percent prize 25 pool. And that was your selling point on that game. 0006 1 That is not the case today. 2 Before I really get into the comments on 3 the Lotto Texas, specifics on the -- of the rule 4 change, I want to say first that I am extremely 5 disappointed in that I have, in the last couple of 6 years, heard the -- like the House Licensing and 7 Administration Committee, as well as the commissioners, 8 tell this commission, repeatedly recommend, strongly 9 recommend that any time there's a rule change, that it 10 needs to be known, that they want the people of Texas 11 to know that there's a rule change being proposed and 12 they expect this commission to do everything in its 13 power to make sure that it is known. 14 In this case, as well as the rule that 15 was adopted a couple months ago where you guaranteed 16 all jackpots, there -- it was not exposed heavily so 17 the people would know that there was a rule change 18 coming. 19 Your Web site, you -- there on -- for 20 this rule on your Web site, there is nothing on that 21 front page that shows that there's a proposed rule. A 22 person has to click on legal. 23 I took the liberty of making copies of 24 your front page of your Web site. There is no mention 25 of any proposed rule on your front page, which is your 0007 1 heaviest-hit page. And this is where something of this 2 magnitude and this importance, when you're talking 3 about dollars generated for the state of Texas, 4 there -- it should be on your front page. However, 5 it's not. 6 A person has to know to click on legal. 7 When they click on legal, they have to scroll down to 8 where it says proposed rules. If it's -- anyway, when 9 they click on that, when they click on proposed rules, 10 they then come up with a chart that shows the rule 11 number, 401.301. 12 For rule title and contact person, it 13 shows general definition, Sarah Woelk. It shows the 14 date that -- it shows three dates. And then it says 15 make on-line comment. There is not one word on this 16 page that even begins to explain what these rules are. 17 This was posted a week ago Friday which, 18 I believe, was the 9th of December. And I could be 19 wrong on the date, but it was a week ago Friday. 20 These links where it says where you can 21 read about the rule, they don't even work today. They 22 worked for one week where it would take you through to 23 the Texas Register. That's because on Friday the Texas 24 Register publishes a new edition and it takes its 25 place. 0008 1 So since Friday, if a person did want to 2 try to read the rule that's published in the Texas 3 Register, they haven't been able to do that. But 4 you're not talking -- players are not lawyers. They're 5 not interested in all that legal stuff. 6 They want information provided to them 7 such has been done in the past, like we're going to 8 change to six-in-54, our prizes, if you match five of 9 six, would now be such and such and our prizes, if you 10 match four of six, needs to be such and such and if 11 we -- if you hit three of six, you'll win such and 12 such. 13 They want the basics. We're going to 14 return 50 percent of sales to the people, down from 52 15 or down from 55. But at any rate, on this chart the 16 links do not work. And there is no explanation 17 anywhere on your Web site. 18 This page says explanation of proposed 19 rules. If you click on that link, it takes you to a 20 page that says legal rules. You can see it's a short 21 page. It's just a format. All it has on it is dates. 22 It has absolutely no information whatsoever as to what 23 you-all are proposing. 24 There is another link that says comment 25 on the proposed rule. So you click on that link. And 0009 1 what you get is an e-mail form for a person to put his 2 first, last name, city, state, zip, phone number, 3 e-mail. And it -- in the -- in the box, it says you 4 can use this form to submit your public comments. 5 But again, nowhere on this page does it 6 tell the people what you're doing. You are forcing 7 them to go to the Texas Register to read 401.304, 8 401.305, 401.403, whatever the number is, and to go 9 through all that stuff. Players are not going to do 10 that. They simply want to be told. 11 The Texas Lottery, I called you-all -- 12 oh, wait. There's one more link, explanation. There's 13 a link on there that says explanation of proposed rules 14 table. It doesn't tell the people anything either. 15 It's just legal jargon, no mention of what's going on 16 or what you-all are proposing. So in essence on your 17 Web site, you have no mention whatsoever of -- of what 18 this rule is all about. 19 For the Texas Legislature to try to 20 encourage you-all to make sure the people know that 21 there's a rule on the table, the Lottery has failed 22 miserably. Not only that, I called Bobby this morning, 23 Bobby Heath. 24 And I asked him for copies of any press 25 releases that should have been issued when the 0010 1 commissioners approved this for adoption. I knew I had 2 not seen one, but I wasn't sure that maybe I missed it. 3 I have now been told there is no press 4 release. One has not even been issued in the media. 5 And at the time that the commissioners approved these 6 rules for adoption, I attended both commission 7 meetings. And I picked up on the table out there the 8 draft proposals of the rule. 9 The media was also at those meetings and 10 they, too, picked these up. And this is what I can 11 only assume was given to the commissioners to read to 12 know what was going on for an explanation about your 13 proposals. Okay? 14 What you have given to us is not 15 readable. And what I mean by readable is: It's just 16 all typewritten words. But there are codes in those 17 words. There are parenthesis that mean strike it out 18 or -- and other codes that say to underline it, that 19 it's new language. 20 I think you know what I'm talking about. 21 Now when it appears in the Texas -- now I've seen the 22 commission before make sure that it was legible in 23 passing out draft documents out there. But in this 24 particular case on -- on these four or five rules, that 25 none of them were marked. 0011 1 For me to be able to determine what the 2 Texas Lottery has done here, I had to literally spend a 3 couple of hours to go through with a ruler and mark out 4 what's to be stricken off, taken out, and had to 5 underline what needed to be -- what was new language. 6 I also found multiple errors of things 7 that had actually been deleted on those drafts that 8 were not marked for deletion. Now the reason I caught 9 that is because, when it finally did get published in 10 the Texas Register, I was able to print out a copy such 11 as you are now passing out today for the first time 12 where can see the strike-throughs and the underlines 13 for what's been deleted and changed in the language. 14 So if the commissioners read what you-all 15 provided to the people, they really have no idea what 16 has taken place on this rule. I hope this never 17 happens again when there's a rule change to where what 18 you give here at the commission meeting is not clearly 19 stated to what you are deleting from the rule and 20 adding to the rule and the changes that you are making. 21 As far as letting the public know, it's 22 no surprise to me that no one is here today because 23 nobody really knows that today is even existing or what 24 the purpose of it is. They -- it's too difficult. 25 You-all have made it entirely too difficult to the 0012 1 people of Texas to know what you are proposing. 2 Okay. Now I come to the Lotto Texas rule 3 first. There is no way that I can endorse this rule 4 that you-all have on the table for Lotto Texas. I have 5 studied it extensively. I have calculated it. I know 6 exactly what it's going to do. 7 And I -- under no circumstances, can I 8 advise the people of Texas to play the games based on 9 this rule. I oppose all allocations and I oppose the 10 odds of the game. I oppose a number of things that 11 have been deleted from the rule. And I'm going to be a 12 little bit more specific in just a minute. 13 Sarah, can I bring you a copy? Because 14 I'm going to talk about it in a minute. 15 MS. WOELK: Sure. 16 MS. NETTLES: Can I give you -- my first 17 comment on the rule, the proposed rule, is that you've 18 decreased the prize pool to 50 percent. However, the 19 rule does not state that the prize pool shall be a 20 minimum of 50 percent. That needs to be in the rule. 21 But more importantly, the rule does not 22 guarantee the people of Texas that they're going to see 23 53 or 50 percent of sales. And the reason that it's 24 not is because it's got a guaranteed prize of three 25 dollars. With that in -- the amount allocated for the 0013 1 three-of-six prize is grossly overallocated. The 2 percentage is entirely too high. 3 The rule calls for rounding down all 4 prizes. So on the para mutual prizes, if it comes out 5 to where the prize amount is 24 dollars and 96 cents, 6 the player receives 24 dollars. 7 As I said earlier, I've called for fair 8 rules and fair payouts and a guarantee that we receive 9 our share of sales. If you wanted to be fair, number 10 one, you would have all para mutual prizes. And that's 11 the way it needs to be across the board. 12 And that's the only way to guarantee the 13 people that they will see their share of sales back. 14 As for the rounding, at least you would be fairer if 15 you rounded up or down based on the 50-cent break. And 16 that needs to be done. 17 I've made Sunset recommendations over the 18 years. And that's what I fought for was for fair 19 payouts. And I don't think the people of Texas are 20 asking for too much from you-all to guarantee us that 21 we're going to see 50 percent of sales. 22 With the allocations that you have in 23 this rule, we'll do good to see 47 percent of sales. 24 And I've calculated over 300 previous drawings and the 25 payouts to arrive at that. 0014 1 Texas conducted 1,093 drawings on the 2 straight six game. In calculating simply the 3 guaranteed prizes, which at that time was a 4 three-dollar prize and a five-dollar prize, the players 5 were cheated out of $35,776,165. 6 That's how much overallocated that 7 guaranteed prize was in just those first 1,093 draws. 8 In addition to that, they held in reserve two percent. 9 And that two percent came to 88.3 million dollars. So 10 right now we're at 124 million dollars that was -- that 11 was part of that percentage that was supposed to go 12 back to the people. 13 When you changed the game to five-in-44, 14 which was in May of 2003, to date you have right at 8.5 15 million in excess funds that sits in reserve that was 16 to be held back in case money was needed to pay those 17 guaranteed prizes. 18 We want to do away with any guaranteed 19 prizes. It's not fair. It's not right. You-all 20 overallocate. And it's -- it's -- it's not necessary. 21 It's -- it's cheating the people. 22 I gave you a piece of paper awhile ago. 23 And all I did is I just -- I did a copy and paste from 24 my massive spreadsheet where I calculated about 25 three -- a little over 300 draws. And I just reached 0015 1 in there and picked some out. 2 And what you see here is I specifically 3 went to the six-in-54. And I showed you the actual 4 draw date of 4/30/03, April 30th of '03. And I showed 5 what your total sales were and the breakdowns for the 6 six-of-six winner. 7 I showed you how many winners there were 8 for five-of-six and how much that totally paid and how 9 much was allocated. You can move on down to the 10 four-of-six that show how many winners, what the prize 11 was, the total amount paid and how much was allocated. 12 And then I came over to three-of-six and 13 I showed you on that -- on that drawing how many 14 winners there were and, of course, what they -- was the 15 guaranteed prize of five dollars. So I showed you what 16 the total paid was versus what was allocated. 17 A little line under that first line that 18 says minus 22,122 dollars, that's how much excess money 19 there was for that guaranteed five-dollar prize. 20 Then on the second line, I have 21 proposed -- I've taken your new prize allocations and, 22 basing on the same drawing for April the 30th of '03, I 23 used the same number of winners and I showed the 24 difference in the prize, how the difference for the 25 five-of-six prize amount versus what it was under the 0016 1 old rule and the old allocations. 2 I also show how much was totally paid and 3 how much was allocated for that prize level. You go 4 across the board under that proposed line, and you can 5 see the same number of winners. But you can see that 6 that four-of-six prize on that same drawing under 7 six-in-54 was 95 dollars and now it's only 45 dollars. 8 That's a huge difference if you're trying 9 to give the people an incentive and reason to play and 10 get your sales up. 11 Move on across to the three-of-six 12 winners and, again, you can see the same number of 13 winners, how much they were paid versus how much was 14 overallocated or how much was allocated which, of 15 course, it would be overallocated by 13 thousand 16 dollars on just that drawing. 17 I did this consecutively over 300 draws 18 to see what the bottom line was, what it would be using 19 your old stats, the old games, what the prizes were and 20 the allocations, the new versus the old. 21 And I think that this is -- this is how 22 come, when I saw the bottom line, I realized why the 23 Texas Lottery has on this proposed rule that you do not 24 expect to make more money but rather just to try to 25 stay at an even keel. 0017 1 I know you-all call other states. I know 2 other states have tried to take their games back after 3 increasing the odds where the people objected. And if 4 other states have done what you-all did on the 5 allocations for those prizes, it's no wonder they 6 failed. 7 No wonder they failed to make more money. 8 The people of Texas have told you, since I've been 9 involved in 1999, to leave our Lotto Texas game alone. 10 And every rule change that they've done and, even 11 though I try sometimes to get the people to leave that 12 subject alone, they do it anyway. 13 And they say we want our old Lotto Texas 14 game back. They still say that today. What they said 15 back then they meant. They told you that they would 16 not play the game unless you gave them back their game 17 or, if you changed it, they weren't going to play. 18 They've made no bones. They haven't 19 changed their mind. They know exactly what they want. 20 They want decent payouts for the game. We want 21 guaranteed that we'll receive our share of sales. 22 What this rule does is you're taking the 23 people down to a 47-percent return on the money. And 24 that's not 50. The last six-in-54 game you had, you 25 increased the three-dollar fourth prize to five 0018 1 dollars. 2 Now you've taken it back to three 3 dollars. And the people complained. If they 4 complained about anything on that first game, it was 5 that three-dollar prize. 6 And so Linda Cloud, in the press 7 conference, she said we're giving you -- we're 8 increasing that three-of-six prize. That's what 9 everybody complains about. So you did that. That 10 first go-round on six-in-54, it was a five-dollar 11 prize. 12 And I don't think it needs to be a 13 guaranteed prize at all. And in order for us to get 14 our share of sales back, it can't be a guaranteed 15 prize. It needs to be a para mutual prize. 16 Either that or do it just like you do 17 Cash Five where you take it straight off the prize pool 18 and then allocate so much for the other prizes and go 19 from there. And then that -- I think that's a very 20 fair way of doing it which, incidentally, reminds me 21 that I made these comments prior to y'all ever even 22 proposing this. 23 And I believe I've made them now three 24 times. After three times of coming before the 25 commissioners and making these recommendations to just 0019 1 give us a fair game and guarantee that we'll get our 2 share of sales, the Texas Lottery still comes down and 3 proposes this kind of rule which is worse than I've 4 ever seen on those allocations. 5 Okay. During the last commission meeting 6 where the commissioners agreed to post this, to approve 7 it to post in the Texas Register to get the peoples' 8 comments, I wanted to make some comments on what was -- 9 what was in the transcript and what was said. 10 Robert Tirloni speaking, and they're 11 talking about getting rid of the bonus ball, and he 12 says in his last sentence here, quote, we have heard 13 since we made the change -- no, I should start before 14 then. 15 And because of the change back to a 16 straight one-digit -- I'm sorry, six-digit one-field 17 game, give the players back the play style that they 18 were accustomed to for many years in Texas and get rid 19 of the bonus ball as part of this recommendation, which 20 seems to be the underlying message that we have heard 21 since we made the change to the bonus ball matrix. 22 My comment on that is that thousands and 23 thousands of people told this commission that they 24 would not play that game if they made the change. They 25 told them back then don't do it. 0020 1 This commission had plenty of warning 2 that they did not listen to from the people of Texas. 3 Then Commissioner Clowe comes down here and he says, 4 quote, and what I heard when we went to six-in-54 from 5 the Lotto players, well, you messed up my numbers 6 and -- you know, and I had my favorite numbers in the 7 50s. 8 "How do you address that issue?" He 9 asked. Tirloni says, "I think that that was a concern 10 at that time. I think now the concern is more of: I 11 don't like the two fields. I don't like choosing the 12 two different fields. I don't like choosing from two 13 different sets of numbers." 14 Commissioner Clowe in this meeting admits 15 that the commission knew and was told by people not to 16 change the game. Yet they did. 17 Then Clowe comes down here and he says, 18 "Okay. I'm concerned about that point. I'm not sure 19 it's a six-in-54 or a six-in-50. And I just wonder if 20 we shouldn't hear from the public on that." 21 Mr. Cox says, "Well, I -- what we are 22 going to do here is voting to expose this for public 23 comment." 24 I explained earlier. You don't have 25 anything on your Web site that explains what you're 0021 1 doing. You're two weeks into it and yet this Texas 2 Lottery has done nothing to expose this. 3 They even admit in this transcript, which 4 I'm going to get to in just a minute where they admit 5 that the people don't even know what the Texas Register 6 is and they certainly don't read it. 7 We have also heard countless reports from 8 the people where they have no idea or they don't have a 9 computer -- I'm sorry -- where players do not have 10 computers. And they don't because they spend their 11 money gambling. They don't have computers. 12 Then Mr. Cox makes a comment a little bit 13 later. And he says -- Mr. Cox says one thing that I've 14 heard somewhere, maybe Robert or Gary can help me 15 remember where I heard this, was that six-of-54 today 16 is pretty much the same as six-of-50 back then adjusted 17 for the population change. 18 Commission Cox says is that wrong because 19 that's not why they changed the game. It had nothing 20 to do with the population change. They changed the 21 game to six-in-54 because the State wanted to make more 22 money. 23 They wanted to give us a harder game so 24 they could get the rolls so that hopefully, with the 25 higher jackpots, people would spend more money. That 0022 1 was the sole purpose of that change was so the State 2 could make more money. 3 And yet the players told them you're not 4 going to get more money out of me. You make the game 5 harder, you're going to lose me. 6 Mr. Tirloni comes down and he's talking 7 about this proposed rule. And he says, quote, it is 8 designed as a 50-percent payout game. 9 That is absolutely false. Yes, your 10 allocations equal 50 percent. But this commission 11 knows full well it is overallocated on those guaranteed 12 prizes. And there is no way on God's green earth that 13 they're going to see, the people will see a 50-percent 14 payout because of that guaranteed prize. 15 Then Commissioner Clowe comes down and he 16 says that we're going to lose -- he says -- he says, 17 "And Robert, I want to -- I want you to understand I 18 appreciate the work that you're doing and others are 19 doing and I'm appreciative of that. But if -- if I had 20 known we were going to lose 30 percent of our player 21 base when I voted for the change that was recommended, 22 I wouldn't have voted for it." 23 When I heard him say that, I almost fell 24 out of my chair over there because he chose to listen 25 to the commission who honestly believed that, by making 0023 1 the game harder to win, you were going to have longer 2 rolls and you were going to get more sales in and you 3 were banking on a few jackpots a year to generate all 4 the sales in a couple of draws versus a steady flow of 5 income all year round. 6 The people of Texas told him do not 7 change the game. If you change the game, I'm going to 8 quit. I'm one of them. I know and I did quit. You 9 lost me. 10 Then Commissioner Clowe says, "And, you 11 know, just to give away 30 percent of that market was a 12 mistake." Yes, it was. And I have driven down here 13 this morning. I got up at four o'clock this morning to 14 drive down here to tell you that what you're doing 15 right now is another major mistake. 16 And I beg you and I plead you not to move 17 forward with that rule with those allocations and those 18 odds. The people oppose it. I know from experience 19 that it doesn't do me any good to come here and comment 20 because nobody listens and nobody does. Yet I have 21 never missed a projection on your rule changes. 22 I can project your sales quite 23 accurately. I know how the games are producing for the 24 state of Texas and they're producing poorly. And I 25 know why they're producing poorly. 0024 1 And I know that this commission banks on 2 calling California and saying what do you do here or 3 calling New York, calling Florida or Massachusetts or 4 Illinois. And you're listening to other states who 5 have moved forward on changes that those changes failed 6 to work. 7 I am hoping that for once you-all will 8 say, you know, wait a minute. Maybe we ought to go 9 against grain because that didn't really work. And I 10 hope that you're -- that he's listening. And I hope 11 this commission is listening because I want to see 12 you-all make money for the state and I want to see your 13 sales increase. 14 You do better up here, you will get those 15 people back. I know it's coming down in this 16 transcript to where they're talking about they don't 17 think they're going to get their players back. But 18 they will. 19 You'll get your players back. If you 20 give them a fair game and you guarantee the people 21 their money, you will have winners. The more people 22 win, the more they spend. And that's a fact. That's 23 indisputable. 24 Commissioner Clowe -- 25 MS. WOELK: I just -- just want to 0025 1 summarize this. So what's your recommendation for a 2 matrix and an allocation that you think is a fair game? 3 MS. NETTLES: The people of Texas want to 4 see six-in-50. That's what they want. I've got tens 5 of thousands of comments. People want to see 6 six-in-50. 7 I personally believe and I can sell, 8 provided you give fair payouts and you give a guarantee 9 that the people, for each and every draw, which is an 10 independent event, receives 50 percent of sales. If 11 that's guaranteed, I will endorse the game. I 12 personally will play it. 13 Okay. Moving on in this transcript, 14 because there was -- there was some markings that I 15 really wanted to point out to you-all and how 16 disappointed I am that none of this has transpired. 17 Commissioner Clowe comes back again and 18 he says, "Okay. In regard to that notice, how are you 19 going to publish it so people understand we are open to 20 their comments relative to six-in-54, six-in-50, 21 six-in-six or, you know, whatever?" 22 Y'all haven't done a damn thing. You've 23 kept another secret. And, of course, I know why. 24 Again, it's coming back to what you've actually done on 25 that rule. 0026 1 Then -- then Kim Kiplin says, "Now the 2 criticism, you know, has always been: Well, you know, 3 who reads the register?" 4 Texas Lottery knows that the players 5 don't even know where the Texas Register is, that 6 that's where it's posted. Your links don't take you to 7 that comment form anymore. It only worked for a week. 8 Then Clowe comes back and he says, "But I 9 would like to have a broad publishing of this rule, 10 consideration certainly on the Web site. I think we 11 ought to issue a press release" that's never been 12 issued. 13 The media doesn't even know what you're 14 actually proposing. You haven't told the people that 15 the prizes are cut in half, four-of-six a measly 50 16 dollars. If y'all want to get people to play, you've 17 got to give them worthwhile prizes. 18 This reminds me of what you've done on 19 Cash Five. That's what's wrong with Cash Five. 20 And then Kim comes up here last month and 21 says -- when they're talking about publishing this and 22 making this well-known and highly publicized so that 23 people know to comment, Kim comes up and she says, "And 24 we do have a new, a new vehicle by which we can provide 25 comment." 0027 1 She's referring to the Web site. And I 2 got to tell you that's funny because it's not new. 3 It's been there since 1999. You've always had that 4 vehicle. They got too much comment one time by e-mail 5 so they -- on the comment period, they refused to 6 accept e-mail. 7 They told people they had to either send 8 it by US Mail or fax it in or come to Austin and 9 comment. She even rejected e-mail because she got so 10 much of it. And the Web site's not new. 11 And your front page ought to just be 12 plastered with: We've got a proposed rule coming. But 13 you also need to tell them the truth about what that 14 rule really, really means. 15 Then this is my last comment on -- I 16 think on this transcript. They were discussing going 17 to six-in-50, six-in-52 versus six-in-54. And Cox 18 starts it by making a statement that six-of-50 -- he's 19 saying that Dr. Eubanks did say was that, at six-of-50, 20 we'd be paying 67 percent of sales or 67 percent. He 21 doesn't say of sales. 22 That's not true. That's physically 23 impossible because you've only allocated 50 percent of 24 sales. What he's referring to is the fear that, by 25 having a guaranteed jackpot, to guarantee that jackpot 0028 1 is where it could conceivably hit up to 67 percent. 2 And Sarah, you look real confused. Do 3 you understand -- 4 MS. WOELK: Yeah, I do. 5 MS. NETTLES: Oh, okay. So you're not 6 confused? 7 MS. WOELK: Well, I think what you're 8 talking about -- they may be talking about allocation 9 over time where you're focused on allocation per draw. 10 MS. NETTLES: Well, yes, what he's 11 referring to on 67 percent. Yeah, on the transcript, 12 the 67 percent, they are referring that we would end up 13 with a 67-percent payback. 14 MS. WOELK: Over time. 15 MS. NETTLES: Over time. But again, I'm 16 going to tell you that that should be physically 17 impossible. Because if these were all para mutual 18 prizes based on sales, you're safe. 19 And the only reason they're throwing in 20 the 67 percent, the only reason it would be that way is 21 if they overestimated, which is what they used to do. 22 They used to say, well, we're not going to have a 23 winner so we'll go on and up it three or four million 24 this time when they knew the sales really didn't 25 justify it. Okay? 0029 1 Gary gets in and he talks about a very 2 negative, negative attitude. He says, "I don't know 3 that we would ever entice that 30 percent of the 4 players who quit playing just because they don't like 5 the game to come back." 6 Your rule in itself is negative in that 7 you don't expect to see an increase in sales. Okay? 8 And because other states have reported to you that 9 players didn't come back, you're assuming that's going 10 to happen here in Texas. 11 And for general purpose reasons, usually 12 it's pretty good to assume something based on something 13 that's happened in the past. However, those other 14 states don't get comments. Those other states don't 15 operate like Texas does. 16 The people of Texas want a lottery. But 17 they will only support it if it's fair and honest. And 18 you will get the people back because I personally sit 19 on a -- probably 50 or 60 percent of your players. And 20 I know what they say because I get their comments every 21 day. 22 I get so many now I can't even -- I can't 23 even return e-mails. And they all tell me the same 24 thing: When are we ever going to get our game back? 25 Okay. Bottom line to what I'm saying 0030 1 here is this rule is horrible. It's not fair. We 2 don't have a guarantee that we're going to get our 3 sales back. 4 You've lowered the three-of-six prize to 5 three dollars rather than five as a guaranteed prize, 6 which we don't need a guaranteed prize. It needs to be 7 a para mutual prize. 8 You have reduced the prize pool from 52 9 percent now to 50 percent. But you've overallocated 10 that guaranteed prize. The people will not see 50 11 percent of sales. They don't see 52 percent now 12 either. 13 And they -- when they said it was 55 14 percent, we didn't see that either. We just saw 53. 15 And we really didn't see 53 because, again, we had so 16 many allocations. You've got two percent in reserve. 17 The State of Texas for Lotto Texas can 18 give back 53 or 55 percent of sales, period. If you 19 just guarantee the people receive 50 percent, you can 20 have your little reserve fund stashed off somewhere you 21 want to help cover your big jackpots when you 22 overestimate. 23 But y'all don't need to be 24 overestimating. You need to pay what you have and only 25 what you have. As a taxpayer, I don't expect y'all to 0031 1 waste taxpayer money, your share of sales, which is 2 what this lottery is supposed to be doing. You need to 3 pay what you have and no more. But we need a fair 4 rule. 5 The rule itself -- in your rule, you 6 don't even tell what the odds are of this proposed 7 rule. You tell the matrix is pick six numbers out of 8 54, but the rule does not tell you what the odds are. 9 The rule under prizes, one jackpot prize 10 letter K, it says: If sales proceeds and the Lotto 11 Texas Prize Reserve Fund are not sufficient to pay a 12 jackpot prize -- there is no prize reserve fund. I 13 don't understand how that can be in here. That's 14 letter K. 15 Now I'm looking at the draft that was 16 put -- I'm sorry -- that I picked up here at the 17 commission last month. I'm looking at this draft page. 18 MS. WOELK: Right. It's there. 19 MS. NETTLES: Oh, okay. 20 MS. WOELK: There is -- and there is a 21 current Lotto Texas Reserve Fund that would be depleted 22 through this rule. 23 MS. NETTLES: I'm sorry. 24 MS. WOELK: A Lotto Texas Reserve Fund 25 currently exists. 0032 1 MS. NETTLES: Yes. 2 MS. WOELK: And this is the mechanism 3 through which it would be depleted. It would not be 4 added to under this rule, but it would be depleted 5 under this rule. 6 MS. NETTLES: I -- I understand what 7 you're saying. I -- I do understand what you're 8 saying. But it mentions -- it mentions a reserve fund 9 a number of times, which is totally confusing. But I 10 do understand what you're saying. 11 You're saying what's in the prize reserve 12 now will be used to fund that $8.5 million -- just 13 since May of '03 is what you would use if you got hit 14 at four million. 15 MS. WOELK: Until it was depleted. 16 MS. NETTLES: Until it was depleted? 17 MS. WOELK: And then it would disappear 18 entirely. 19 MS. NETTLES: I understand that. Okay. 20 Yeah, because under B, under fourth prize it too refers 21 to the prize reserve fund, okay, for paying the 22 three-of-six prizes? 23 MS. WOELK: And you need a legal 24 mechanism to deplete that. Otherwise, you have a fund 25 with no mechanism -- 0033 1 MS. NETTLES: Well, you had a fund with 2 no mechanism because you fixed that with the last rule 3 change. But anyway -- and Sarah, I thank you very much 4 for talking back to me. Okay? 5 As for the policies and procedures rule, 6 I got to tell you that I've had a very difficult time 7 with that because I have drafts here with no markings. 8 And until today, I did not get copies to where they 9 were legible for me to really comment on very 10 specifically and to study it and evaluate it. 11 But I do want to say for the record that 12 I am completely opposed to the Texas Lottery doing away 13 with the rules, the formal rules. The game does not 14 need to be changed -- the games do not need to be 15 changed like you change your policies and procedures at 16 this -- at this agency, because your policies and 17 procedures change quite frequently. 18 And these rules need to spell out. You 19 even have one policy and procedure that ought to become 20 a part of the rule. And that is how you calculate the 21 jackpot prize amount. That should have been set in 22 stone. 23 That was a little policy and procedure 24 that this agency has abused and changed it whenever 25 they wanted to, to suit whatever they wanted to, 0034 1 irregardless of what the rules said. 2 But how to actually physically calculate 3 the amount a jackpot prize winner is to receive should 4 become a part of the rule, the old rules, not this 5 policy and procedure things. 6 I can name probably 20 different items -- 7 I'm not going to, but I could -- where these policies 8 and procedures have been altered because of something 9 that I did that needed to be changed to keep me from 10 doing that again. 11 So I don't trust the Texas Lottery. I 12 think that our game rules need to be set in stone and 13 not based on policies and procedures. 14 And the same thing applies for the 15 scratch tickets, too. They ought to be set in stone 16 and a formal deal. And I hope the AG stops y'all from 17 doing that. But knowing the AG and how things here in 18 Austin work, I'm sure he's going to allow you to do it. 19 But I'm going to -- I still have two to 20 three weeks -- two weeks to comment on that and to 21 study it and to read it and to see what's been taken 22 out and all. And I have not really done that. I have 23 studied extensively that Lotto Texas rule. 24 MS. WOELK: Okay. Well, we will make 25 sure that you can submit written comments and make sure 0035 1 the links work if you want to use that mechanism. 2 MS. NETTLES: No, I'm not talking about 3 the links for making comments, the link to the -- 4 MS. WOELK: Oh, the actual links -- 5 MS. NETTLES: -- to the rules. 6 MS. WOELK: -- to the rules? Well, I -- 7 MS. NETTLES: Yeah. It's -- those no 8 longer work and haven't since Friday afternoon. 9 But anyway, I want to thank you-all for 10 listening to me, taking your valuable time to listen to 11 me. And again, I want to reinforce that I am 12 completely opposed to this rule, to all allocations, to 13 rounding down prizes. 14 And I want it real clear that there is no 15 guarantee that the people of Texas will see 50 percent 16 of sales. And, in fact, they will not see 50 percent 17 of sales on those allocations as I have proven with 300 18 drawings on calculating. 19 Do not adopt that rule as it is. The 20 people you will lose. You will absolutely lose on that 21 rule because the players do not play for a 50-dollar 22 prize for matching four-of-six and for a three-dollar 23 for matching three. They opposed that way back when. 24 So thank you very much and I hope y'all 25 have a merry Christmas. 0036 1 MS. WOELK: Okay. Thank you. And it's 2 good that someone actually reads all those words and we 3 appreciate that. 4 MS. NETTLES: I read everything. 5 MR. ANGER: Thank you for your time and 6 your comments. 7 (Hearing concluded at 11:13 a.m.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0037 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, David Bateman, RPR, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify that 8 the above-captioned matter came on for hearing before 9 the Texas Lottery Commission as hereinafter set out, 10 that I did, in shorthand, report said proceedings, and 11 that the above and foregoing typewritten pages contain 12 a full, true, and correct computer-aided transcription 13 of my shorthand notes taken on said occasion. 14 15 Witness my hand on this the 27th day of 16 December 2005. 17 18 19 ___________________________________ 20 David Bateman, RPR, Texas CSR 7578 Expiration Date: 12/31/07 21 1801 North Lamar Boulevard Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 24 25 JOB NO. 051219DPB