1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 REGULAR MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § THURSDAY, MAY 19, 201l § 9 10 11 12 COMMISSION MEETING 13 THURSDAY, MAY 19, 2011 14 15 16 BE IT REMEMBERED THAT on Thursday, the 19th 17 day of May 2011, the Texas Lottery Commission meeting 18 was held from 10:00 a.m. until 11:34 a.m., at the 19 Offices of the Texas Lottery Commission, 611 East 6th 20 Street, Austin, Texas 78701, before CHAIRMAN MARY ANN 21 WILLIAMSON and COMMISSIONER J. WINSTON KRAUSE. The 22 following proceedings were reported via machine 23 shorthand by Aloma J. Kennedy, a Certified Shorthand 24 Reporter of the State of Texas. 25 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONER: Mr. J. Winston Krause 5 GENERAL COUNSEL: 6 Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: Mr. Gary Grief 8 AUDIT MANAGER, CHARITABLE BINGO OPERATIONS: 9 Ms. Debbie Parpounas 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, MAY 19, 2011................ 7 4 AGENDA ITEM NO. I - Meeting Called to Order......... 7 5 AGENDA ITEM NO. II - Report by the Charitable Bingo Operations Director and possible 6 discussion and/or action on the Charitable Bingo Operations Division’s activities, 7 including updates on staffing, licensing, accounting and audit activities, pull-tab 8 review, special projects, and upcoming operator training................................... 7 9 AGENDA ITEM NO. III - Report, possible 10 discussion and/or action on lottery sales and revenue, game performance, new game 11 opportunities, advertising, market research, trends, and game contracts, agreements, 12 and procedures...................................... 8 13 AGENDA ITEM NO. IV - Report, possible discussion and/or action on transfers to 14 the State and the agency’s budget status............ 21 15 AGENDA ITEM NO. V - Report, possible discussion, and/or action on Lottery 16 Operations and Services Contract Amendment No. 8 credit calculation............................ 23 17 AGENDA ITEM NO. VI - Report, possible 18 discussion and/or action on the 82nd Legislature.................................... 24 19 AGENDA ITEM NO. VII - Consideration of and 20 possible discussion and/or action, including notice of intention to review (proposed 21 review), on 16 TAC Chapter 403 relating to General Administration.............................. 29 22 23 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. VIII - Report, possible discussion and/or action, including extensions 4 or amendments on the instant ticket manufacturing and services contracts and 5 outside counsel contract(s) for intellectual property matters, and amendments to the 6 instant ticket testing services contract............ 31 7 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action on external 8 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on 9 the Internal Audit Department’s activities.......... 32 10 AGENDA ITEM NO. X - Report, possible discussion and/or action on GTECH Corporation....... 33 11 AGENDA ITEM NO. XI - Report by the Executive 12 Director and/or possible discussion and/or action on the agency’s operational status, 13 agency procedures, and FTE status................... 35 14 AGENDA ITEM NO. XII - Consideration of the status and possible entry of orders in: 15 A. Docket No. 362-11-2116 – Hawk Cove Grocery & Spirits. 16 B. Docket No. 362-11-1931 – Commerce Convenience. C. Docket No. 362-11-1932 – On The Run Food Mart. 17 D. Docket No. 362-11-1933 – The Liquor Store. E. Docket No. 362-11-1934 – Shop N Save. 18 F. Docket No. 362-11-1935 – Zoom In Market #2. G. Docket No. 362-11-1936 – Jayshrikrishna, Inc. 19 H. Docket No. 362-11-2643 – Juan Carrasco Mercantile. 20 I. Docket No. 362-11-2642 – Silver Bell Grocery. J. Docket No. 362-11-2639 – Juniors. 21 K. Docket No. 362-11-2641 – A & R Drive Thru. L. Docket No. 362-11-3058 – Jimmy’s Corner 22 Store. M. Docket No. 362-11-3059 – 1st Stop Grocery. 23 N. Docket No. 362-11-3060 – Boy’s Kwik Stop. O. Docket No. 362-11-1384 – Scalco’s Supermarket. 24 P. Docket No. 362-11-1198 – Dickinson Grocery. Q. Docket No. 362-11-3352 – A To Z Plus Food Mart. 25 R. Docket No. 362-11-3353 – Shell On Western. 5 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XII (continued) 4 S. Docket No. 362-11-3354 – Shell On Western GP. 5 T. Docket No. 362-11-3355 – Rite Track #15. U. Docket No. 362-11-3846 – J & H Grocery. 6 V. Docket No. 362-11-3844 – T K Mart. W. Docket No. 362-11-3593 –Arechiga 7 Petroleum, Inc. X. Docket No. 362-11-3595 – Maple 8 Convenience Store. Y. Docket No. 362-11-3596 – Super King K. 9 X. Docket No. 362-11-3598 – East Shore Grocery and RV Parkleg. 10 AA. Docket No. 362-11-2562 – Los Rios Texaco. BB. Case No. 2011-343 – Stop N Bye. 11 CC. Case No. 2011-346 – HEB Food Store #227. DD. Case No. 362-11-2561 – One Star Food Mart. 12 EE. Case No. 2011-445 – Circle 786 Chevron. FF. Case No. 2011-549 – Exxon #19243. 13 GG. Case No. 2011-455 – Foodmart. HH. Docket No. 362-11-3533 – H-Town’s Royal 14 Crown..................................... 36/53 15 AGENDA ITEM NO. XIII - Public comment............... 53 16 AGENDA ITEM NO. XIV - Commission may meet in Executive Session: 17 A. To deliberate the duties and evaluation of the Executive Director pursuant to 18 Section 551.074 of the Texas Government Code. 19 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 20 to Section 551.074 of the Texas Government Code. 21 C. To deliberate the duties and evaluation of the Charitable Bingo Operations 22 Director pursuant to Section 551.074 of the Texas Government Code. 23 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 24 the Texas Government Code. 25 6 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XIV (continued) 4 E. To deliberate the duties of the Human Resources Director pursuant to Section 5 551.074 of the Texas Government Code. F. To receive legal advice regarding pending 6 or contemplated litigation pursuant to Section 551.071(1)(A) and/or to receive 7 legal advice regarding settlement offers pursuant to Section 551.071(1)(B) of the 8 Texas Government Code and/or to receive legal advice pursuant to Section 551.071(2) 9 of the Texas Government Code, including but not limited to: 10 Texas Lottery Commission v. Leslie Warren, Texas Attorney General Child 11 Support Division, Singer Asset Finance Company L.L.C., and Great-West Life & 12 Annuity Insurance Company Department of Texas, Veterans of 13 Foreign Wars et al. v. Texas Lottery Commission et al. 14 Rafael Tapia a/k/a Rafael Demetrio Tapia-Bido v. 7-Eleven et al. 15 Employment law, personnel law, procurement and contract law, 16 evidentiary and procedural law, and general government law.............. 57 17 18 AGENDA ITEM NO. XV - Return to open session for further deliberation and possible action on any 19 matter discussed in Executive Session............... 59 20 AGENDA ITEM NO. XVI - Adjournment................... 59 21 REPORTER'S CERTIFICATE.............................. 60 22 23 24 25 7 1 P R O C E E D I N G S 2 THURSDAY, MAY 19, 2011 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is May 19, 2011. The time 8 it 10:99 a.m. Commission Krause is present, so we do 9 have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: Our next item is 12 report by the Charitable Bingo Operations Director and 13 any discussion or action on their activities, including 14 updates on staffing, licensing, accounting and audit 15 activities, pull-tab review, special reports, operator 16 training. 17 Phil is not here this morning, so Debbie 18 will be making that report for us. 19 MS. PARPOUNAS: Good morning. For the 20 record, I am Debbie Parpounas, the audit manager of 21 Charitable Bingo, sitting in on behalf of Phil this 22 morning. 23 Other than what's in your notebooks, and 24 then also to let you know that the next Bingo Advisory 25 Committee meeting is tentatively scheduled for June 1st, 8 1 beginning at 10:00, we have no further updates, unless 2 you have any questions. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Commissioner, do you have any questions? 5 COMMISSIONER KRAUSE: I do not. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you. 8 Thank you, Debbie. 9 AGENDA ITEM NO. III 10 CHAIRMAN WILLIAMSON: Our next item is 11 report, possible discussion and/or action on lottery 12 sales and revenue, game performance, new game 13 opportunities, advertising, market research trends and 14 game contracts, agreements and procedures. 15 Kathy and Robert, this is your item, as 16 well as Mike Anger is going to share some information 17 with us as well. 18 MS. PYKA: Good morning, Commissioners. 19 With me at the table this morning is Robert Tirloni to 20 my right and Michael Anger to my left. The first chart 21 that we have before you this morning, Commissioners, 22 reflects comparative sales through the week ending 23 May 14th of 2011. Our total Fiscal Year 2011 sales 24 through this 37-week period are $2.722 billion, an 25 increase of $28.8 million compared to $2.693 billion in 9 1 sales for the same period last fiscal year. 2 Our Fiscal Year 2011 instant ticket sales 3 reflected on the second blue bar are $2.03 billion, 4 which is a $46.5 million increase over the same period 5 for Fiscal Year 2010. 6 Our Fiscal Year 2011 on-line sales 7 reflected on the second red bar are at $689.9 million, 8 which is a $17.7 million decrease under the 9 $707.6 million figure for last fiscal year. 10 Our next slide for you reflects cumulative 11 average daily sales for Fiscal Years 2009, Fiscal Year 12 2010 and Fiscal Year 2011. As reflected by the total 13 cumulative sales or daily sales average for Fiscal Year 14 2011 is $10.6 million, which is four-tenths of a 15 percent -- of a decline from the prior fiscal year and a 16 5.1 increase over Fiscal Year 2009. 17 Commissioners, the jackpot games are 18 portrayed with the white font. And, as noted, for 19 Fiscal Year 2011, our jackpot games have an average of 20 $1.56 million, which is a $271,000 decrease from the 21 prior fiscal year and $235,000 increase over Fiscal Year 22 2009. 23 The sales difference is attributed to the 24 Lotto Texas game. As noted above, you see that the 25 average there is $476,000. And last fiscal year we had 10 1 a $76 million Lotto jackpot in October of 2009, as well 2 as we were advertised as $89 million during this time 3 frame in Fiscal Year 2009. 4 The daily games are highlighted in the 5 green font, are at $1.1 million for the current year, 6 exceeding Fiscal Year 2010 by 1.8 percent and below 7 Fiscal Year 2009 by 1.9 percent. 8 I would like to highlight for you in this 9 series of games, our Pick 3 sales are up 1.6 percent 10 over last fiscal year, and Daily 4 sales are up just 11 over 10 percent over last fiscal year. 12 And then our instant games are highlighted 13 with the yellow font at $7.9 million, an increase of 14 $212,000 over last fiscal year and an increase of 15 $297,000 over Fiscal Year 2009. 16 Now Robert will provide an overview of 17 actual sales for Fiscal Year 2011. 18 MR. TIRLONI: Good morning, Commissioners. 19 For the record, my name is Robert Tirloni. I'm the 20 Products Manager for the Commission. 21 This is, as Kathy said, our fiscal year to 22 date comparison of 2011 to Fiscal 2010. It's the same 23 layout as the previous slide. Our jackpot games are 24 represented in white at the top of the slide. Overall, 25 our jackpot games are down just under $22 million. The 11 1 major reason for that decline is, as Kathy noted, Lotto 2 Texas jackpot, this time last year we were in a roll 3 cycle that ended up at a $97 million jackpot, right 4 towards the end of May of 2010. So that is the major 5 contributor to that decline in the jackpot games. 6 Our daily games are doing well. They're 7 up by $4.1 million. That's in the middle of the slide 8 in green. We're seeing healthy growth in our Pick 3 9 game. Pick 3 is up a little over $2 million year-over- 10 year. 11 And, lastly, our instant games are doing 12 very well. We've had very solid sales weeks for 13 numerous weeks in a row, and we're very happy about 14 that, and we're having a very solid instant ticket sales 15 week again this week. And all of that combined is 16 leading to our almost $29 million surplus in Fiscal 2011 17 compared to Fiscal 2010. 18 And Michael is here, as you noted, to 19 share some information about one of those instant games, 20 and he's going to talk about Texas Lottery Black. 21 MR. ANGER: Good morning, Commissioners. 22 For the record, my name is Michael Anger, and I'm the 23 Lottery Operations Director. 24 And I wanted to come and give you an 25 update today on our Texas Lottery Black instant ticket 12 1 game series. You've got samples before you. Robert 2 talked about how we are doing very well with regard to 3 our instant ticket sales this fiscal year. And this 4 particular product series is one of the reasons for that 5 success. 6 We launched this ticket series back in 7 January. And we wanted to do something that was 8 different with regard to our instant product. We wanted 9 to have something that was visually unique. You'll note 10 on the ticket that we have black-on-black ink designs 11 and patterning on the ticket, with gold leaf lettering. 12 And we wanted to create a product that would position 13 itself differently from our typical scratch-off games. 14 And, you know, we believe we've done that 15 successfully. It does have a very unique feel. It has, 16 you know, kind of a high end quality associated with it. 17 And we also wanted to build an advertising campaign 18 wrapped around this product that would communicate that 19 same type of high end, high quality feel associated with 20 this product. 21 And we got together and set our 22 advertising goal to capitalize on that. And we worked 23 with the ad agencies, and we came up with the luxury 24 campaign. And we used a play on words with regard to 25 the word "luxury" -- l-u-c-k -- "luckury." And we've 13 1 gone out and executed that in the marketplace. But we 2 also felt like that this game provided us with a unique 3 opportunity to reach out and communicate not only in a 4 different way with regard to lottery products but also 5 to a different clientele in new market media areas that 6 we haven't executed and utilized in the past. 7 So with this campaign, we went out and 8 created an execution to run both in the Texas Monthly 9 magazine publication and also in the Wall Street 10 Journal. And before you today you have a copy of the 11 Monday, May 16th issue of the Wall Street Journal. It's 12 flagged, but it's the money and investing section of 13 that publication. And on the back cover of that 14 publication, you'll see our advertisement that we ran. 15 The ad plays on the look of high end 16 fashion and fragrance advertisements that run in both of 17 the publications, Texas Monthly and the Wall Street 18 Journal. It features a sophisticated model shot in 19 black and white with the headline, "Luckury for men and 20 Women By Texas Lottery." The ticket is cleverly 21 showcased as a perfume bottle at the bottom, with the 22 line "Available At Select Lottery Retailers," lending 23 the unique and exclusive nature we feel that this 24 product brings to the market. 25 The ad ran in March in the Texas Monthly 14 1 publication. We ran the first of this week in the Wall 2 Street Journal. And we'll run two more times this 3 summer in that execution. And we've also explored and 4 we're running in some different other media vehicles as 5 well, but I wanted to kind of bring these to you today 6 as a representation of what we're doing to support this 7 product. 8 And the punch line of all of this is, is 9 that we think it's a different product. We're 10 positioning it differently and advertising it 11 differently. And this game has been hugely successful 12 for the Commission. This game is averaging, since its 13 inception and launch back in January, over $5 million a 14 week from the product line series. It indexed -- the 15 first game, through its first 12 weeks, indexed at 191, 16 which is the highest 12-week index that we've ever had 17 in our history for a $10.00 product. So we believe that 18 it's executing in the marketplace and doing all the 19 things exactly the way we wanted it to, and we think 20 that it brings that unique quality and brings something 21 different. And we're excited about how it's performing, 22 and we believe that it may be bringing in some new 23 consumers to our product line as well. 24 And that concludes my remarks. I would be 25 happy to answer any questions you might have. 15 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 Commissioner, do you have any questions or 4 comments? 5 COMMISSIONER KRAUSE: Well, I was just 6 interested to find out, is part of the luxury, you know, 7 higher ticket price and maybe higher payout? 8 MR. ANGER: It is positioned at our $10.00 9 price point, which is essentially in the middle of the 10 price point ranges that we have. So we wanted to find 11 some balance there, because we were trying to appeal to 12 a new market. And we didn't want to go so high in the 13 price point that a new consumer might feel uncomfortable 14 trying the product. So it's in the middle of our price 15 point range, but the prize structure design on this game 16 has a top prize of a million dollars. The average top 17 prize in the $10.00 price point is $100,000. So, you 18 know, going with that luxurious feel and that unique 19 quality, this game also has, you know, a bigger call- 20 out headline prize that players may be interested in as 21 well. 22 COMMISSIONER KRAUSE: What was the 23 thinking around selecting the locations where it's going 24 to be available. I mean, it's not available everywhere. 25 Right? 16 1 MR. ANGER: It is available at all of our 2 retail locations. So the play in our advertisement with 3 regard to the exclusivity is, is that only lottery 4 retailers have this product line. 5 (Laughter) 6 COMMISSIONER KRAUSE: Excellent. Thank 7 you. 8 CHAIRMAN WILLIAMSON: I think this is -- 9 as you know, I've been encou- -- I've been very 10 supportive of this. I think this is a great new reach- 11 out for us. You know, the fact that we have a higher 12 price point and a higher payout also reflects in the 13 fact that we have a lot higher sales for this product. 14 So, you know, once again, it demonstrates 15 that relationship, and I think that's great. And I just 16 want to -- are the people that worked on this here? Did 17 you bring them? 18 MR. ANGER: Several of the individuals who 19 worked on this are here. Largely, we worked very 20 closely with the advertising agencies. And there's ad 21 agency representatives here in the audience today from 22 both TracyLocke and LatinWorks. And then our products 23 team internally, headed by Robert Tirloni and his team, 24 along with our advertising team, who worked very closely 25 with the ad agency to create these concepts. 17 1 I know Ray Page is in the audience and I 2 believe Andrew Leeper, our creative coordinator, is also 3 in the audience. And all those individuals work as a 4 team with our ad agency to create these campaigns and 5 execute in the marketplace. 6 MR. GRIEF: Mike, could we ask all those 7 people you mentioned to stand, please. 8 (People stand) 9 COMMISSIONER KRAUSE: I see them. 10 Excellent. 11 CHAIRMAN WILLIAMSON: All right. 12 COMMISSIONER KRAUSE: It works. 13 CHAIRMAN WILLIAMSON: Thank you. I think 14 this is a great endeavor. Y'all did a great job. Thank 15 you. 16 (Applause) 17 MR. ANGER: Thank you. 18 MR. TIRLONI: And, Commissioners, Gary has 19 some slides that he is going to cover this morning as 20 well. 21 MR. GRIEF: Thank you, Robert. 22 Commissioners, as we've done in the past, 23 this morning I want to share with you some selected 24 results from the quarterly Market Tracking Study that we 25 conduct. The purpose of the Market Tracking Study is to 18 1 gauge the public's awareness of and their participation 2 rate in our Texas lottery games. A much smaller and 3 secondary function of our quarterly study is to obtain 4 feedback based on a small number of public perception 5 questions. Those public perception responses are what 6 I'm going to show you today. As a reminder, the 7 Quarterly Tracking Study involves approximately 800 8 respondents each quarter. 9 So the first slide that you see up now 10 graphically illustrates the responses to the question of 11 how well-informed do you feel about who the Texas 12 Lottery is and what they do? Dark blue at the bottom of 13 each bar indicates not informed, the light blue in the 14 middle indicates neutral or don't know, and the copper 15 color at the top indicates informed. 16 The next slide illustrates the responses 17 to the question of how would you describe your overall 18 opinion of the Texas Lottery? Again, the dark blue at 19 the bottom indicates negative, the light blue in the 20 middle indicates neutral or don't know, and the copper 21 color at the top indicates positive. 22 And the final slide I'll show you this 23 morning illustrates the responses to the question of, 24 "How do you agree or disagree with the following 25 statement: The Texas Lottery is operated fairly and 19 1 honestly?" The dark blue at the bottom indicates 2 disagree, the light blue in the middle indicates neutral 3 or don't know, and the copper color at the top indicates 4 agree. The responses to all three of these questions 5 have been consistent over time. 6 Many years ago, these were presented in 7 Commission meetings on a monthly basis. Sometime ago 8 the Commission requested we go to quarterly. And then 9 most recently we've gone to a biannual basis. As those 10 responses are relatively consistent over time, with very 11 little change, the Commission may want to revisit this 12 schedule once again. An alternative for your 13 consideration may be to have staff present this data 14 only when a significant change is detected, but that 15 would certainly be your consideration. 16 Commissioners, that concludes my comments 17 on this item. 18 CHAIRMAN WILLIAMSON: Thank you. 19 Commissioner, do you have any questions or 20 comments? 21 COMMISSIONER KRAUSE: No, ma'am. 22 CHAIRMAN WILLIAMSON: I would probably 23 agree with you to a certain -- you know, if there are 24 substantive changes. I think we should at least present 25 it once a year, regardless if there is a substantive 20 1 change or not. So I would like to see that, there 2 again, unless there's something substantive that comes 3 up. 4 COMMISSIONER KRAUSE: I guess I do have a 5 question. Do we know what makes that move one way or 6 the other, because I noticed that there was a quarter in 7 2009 where there were fewer people that, you know, 8 disagree with what we did, more people that liked what 9 we were doing and that kind of thing. 10 MR. GRIEF: Those changes aren't 11 remarkable, Commissioner, based on the sample that's 12 taken. 13 COMMISSIONER KRAUSE: But do we know what 14 moves them around? 15 MR. GRIEF: No, we don't. 16 COMMISSIONER KRAUSE: Okay. 17 MR. GRIEF: We haven't ever been able to 18 tie that -- other than 20 years ago, we haven't ever 19 been able to tie that back to events that are happening 20 in the marketplace or with -- 21 COMMISSIONER KRAUSE: Publicity or -- 22 MR. GRIEF: There's been no correlation. 23 Sometimes there is an opposite correlation to what you 24 might expect, so I don't have a good answer for that. 25 CHAIRMAN WILLIAMSON: All right. Thank 21 1 you. 2 So unless anybody -- Commissioner, you 3 object -- once a year. 4 MR. GRIEF: Once a year. Very good. 5 Thank you. 6 CHAIRMAN WILLIAMSON: Okay. Thank you. 7 AGENDA ITEM NO. IV 8 CHAIRMAN WILLIAMSON: All right. The next 9 item, report, possible discussion and/or action on 10 transfers to the state and the agency's budget status. 11 Kathy. 12 MS. PYKA: Thank you, Madam Chair. Again 13 for the record, my name is Kathy Pyka, Controller for 14 the Lottery Commission. 15 Commissioners, Tab IV does include 16 information on the agency's transfers to the state as 17 well as our operating budget status. The first report 18 in your notebook reflects revenue and allocations to the 19 Foundation School Fund, Texas Veterans Commission and 20 the allocation of unclaimed prizes for the period ending 21 March 31 of 2011. 22 Our total cash transfer to the state 23 amounted to $567.4 million through the seventh month of 24 the fiscal year. The second page of your notebook 25 reflects the detailed information for the monthly 22 1 transfers. Of the $567.4 million transfer to the state, 2 $531.1 million was the amount transferred to the 3 Foundation School Fund. $4.8 million was transferred to 4 the Texas Veterans Commission, with a balance of 5 $31.5 million transferred from unclaimed lottery prizes. 6 Commissioners, this represents a 7 4.6 percent decrease, or $25.5 million, under the amount 8 transferred to the Foundation School Fund through March 9 of 2010. 10 Also included in your notebook is the 11 report of cumulative sales, expenditures and transfers 12 from Fiscal Year 1992 to date. Our total cumulative 13 transfers to the Foundation School Fund through March of 14 this year now total $13.2 billion. 15 A final item included under this tab is 16 the agency's Fiscal Year 2011 method of finance summary 17 for the second quarter ending February 28th. The 18 Commission's Lottery account budget for Fiscal Year 2011 19 is $209.2 million. And of this amount, 79.1 percent was 20 expended and encumbered through the end of the second 21 quarter. 22 Our Bingo Operations budget funded by 23 general revenue is $15.5 million, with 55.7 percent 24 expended and encumbered through the end of the second 25 quarter. 23 1 Commissioners, this concludes my 2 presentation. I would be happy to answer any questions. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Commissioner, do you have any questions? 5 COMMISSIONER KRAUSE: No, I don't. 6 CHAIRMAN WILLIAMSON: Thank you, Kathy. 7 AGENDA ITEM NO. V 8 CHAIRMAN WILLIAMSON: Let's go on down -- 9 No. V, next item, report, possible discussion and/or 10 action on Lottery Operations and Services Contract, 11 credit calculation. 12 MS. PYKA: Thank you. Commissioners, this 13 morning I wanted to provide you an update on Amendment 14 No. 8 of the Lottery Operations and Services contract 15 and the amount that was due to the Commission for the 16 second quarter of Fiscal Year 2011. 17 Section 10.3.3 of the amendment provides 18 an annual credit to the Commission equal to 12 percent 19 of GTECH's annual incremental revenue from sales over 20 the previous fiscal year for every tenth of a percent 21 increase in overall prize payout for instant and on-line 22 games. 23 Commissioners, this section of the 24 contract resulted in a credit of $656,787 during the 25 second quarter, which is based on increased lottery 24 1 sales for the quarter and an increase in prize payout 2 percentage. Commissioners, there was not a credit due 3 under Section 10.3.4 of the amendment, and a copy of 4 that credit calculation is included in your notebook. 5 And I would be happy to answer any 6 questions. 7 CHAIRMAN WILLIAMSON: Commissioner, do you 8 have any questions? 9 COMMISSIONER KRAUSE: No, ma'am. 10 CHAIRMAN WILLIAMSON: All right. Thank 11 you. 12 MS. PYKA: Thank you, Commissioners. 13 AGENDA ITEM NO. VI 14 CHAIRMAN WILLIAMSON: Our next item is 15 report, possible discussion on the 82nd Legislature. 16 Nelda, this is your item, please. 17 MS. TREVINO: Good morning, Commissioners. 18 For the record, I'm Nelda Trevino. I'm the Director of 19 Governmental Affairs. 20 The last day of the regular session is 21 May 30th. And based on House and Senate rules, there 22 are various deadlines that come into play during these 23 last several weeks of the session related to actions 24 that must occur in order for a bill to continue to be 25 considered. As a result, numerous bills are or will be 25 1 considered dead by procedural action. 2 In your notebook we have provided you with 3 a complete tracking report of all the bills the agency 4 has been tracking this session. We have tracked 212 5 bills out of the over 5800 bills that have been filed in 6 this legislative session. 7 In addition to those bills with specific 8 impact to the agency, many of the bills on the tracking 9 report relate to state agencies across the board. For 10 example, there are bills related to purchasing and 11 contracting, open records, open meetings and human 12 resource-related legislation. 13 This morning we have provided you an 14 updated tracking report of only those bills that 15 specifically impact the agency. There are several bills 16 on this report that I would like to highlight today, and 17 these include House Bill 4 by Rep. Jim Pitts. This bill 18 relates to the supplemental appropriations and provides 19 direction to agencies regarding adjustments to 20 appropriations for the current fiscal year. The bill 21 includes the 2.5 percent budget reduction for the Bingo 22 Division that was previously identified and incorporated 23 in the agency's operating budget for this fiscal year. 24 The next bill, House Bill 2728 by 25 Rep. Senfronia Thompson, and this bill relates to the 26 1 operation and regulation of charitable bingo. In 2 addition to some clarifying language, the bill would 3 authorize an increase to the annual limit on the number 4 of temporary licenses from 24 to 36 and clarify some 5 procedures related to the transfer of commercial lessor 6 licenses. I believe this was previously reported. Phil 7 is at the Senate State Affairs Committee hearing where 8 this bill is being considered this morning. 9 Senate Bill 626 by Sen. John Carona, this 10 is the bill that I've mentioned before that clarifies 11 provisions in the Lottery Act as it relates to the 12 assignment of lottery prizes. This bill was voted out 13 of the Senate and was also voted favorably out of the 14 House Licensing Committee. And we anticipate this bill 15 to be placed on the House local calendar for the full 16 House to consider. 17 Senate Bill 1342 by Sen. Kel Seliger, this 18 bill authorizes the use of bingo proceeds as an 19 allowable expense to provide health insurance benefits 20 for bingo employees. This bill has also been voted out 21 of the Senate and has been voted favorably out of the 22 House committee and is now eligible to be placed on the 23 House calendar for the full House to consider. 24 The last bill I want to mention is House 25 Bill 1, and that's the general appropriations bill for 27 1 the next biennium. And included in the agency's 2 appropriation is the funding of $2.5 million in capital 3 budget authority for the redesign of the automated 4 charitable bingo system. This funding is contingent on 5 a one-time license fee increase for bingo conductors and 6 lessors. And general provisions included in the 7 appropriations bill are items that are applicable to all 8 state agencies or items that are still being considered 9 by the conference committee. So until those decisions 10 are made, we're not sure what sort of impact that might 11 have on state agencies. 12 And, finally, at the conclusion of this 13 regular session, the Governmental Affairs staff will 14 identify those bills that have been enacted and we will 15 start preparing the implementation of any of those bills 16 that impact the agency. 17 That concludes my report, and I'll be glad 18 to answer any questions. 19 CHAIRMAN WILLIAMSON: Commissioner? 20 COMMISSIONER KRAUSE: On the bill 21 concerning assignment of lottery proceeds, is there 22 anybody that opposes that up there? 23 MS. TREVINO: I don't believe so, 24 Commissioner Krause. What we have done, we have worked 25 with the Attorney General's office and also members of 28 1 the industry that have an interest in that bill, and so 2 I believe the language that's in there is language that 3 both the Attorney General's office and, again, those 4 interested parties have all been in agreement with. 5 COMMISSIONER KRAUSE: Good. So it's not 6 controversial? 7 MS. TREVINO: No, sir. 8 COMMISSIONER KRAUSE: Excellent. That 9 will keep us out of the courthouse, then. 10 MS. TREVINO: We hope so. 11 CHAIRMAN WILLIAMSON: On the insurance for 12 the bingo workers, when you say out of charitable 13 proceeds, at what point does it come out? In other 14 words, will that come out before the proceeds go to the 15 state, before they go to the charities? I mean, at what 16 point along the track of the money does that get pulled 17 out in this bill? 18 MS. TREVINO: And I will look to Debbie to 19 clarify. But I believe all those allowable expenses are 20 prior to what is returned to the state. 21 CHAIRMAN WILLIAMSON: Okay. 22 MS. PARPOUNAS: Correct. 23 CHAIRMAN WILLIAMSON: Okay. All right. 24 Thank you. I have no questions. 25 29 1 AGENDA ITEM NO. VII 2 CHAIRMAN WILLIAMSON: Okay. Let's go on 3 to the next item, consideration of and possible 4 discussion and/or action, including notification of 5 intention to review 16 TAC Chapter 403 relating to the 6 general administration. 7 Kim, this is your item, please. 8 MS. KIPLIN: Commissioners, good morning. 9 The Government Code, Administrative procedures Act, 10 Section 2001.039, requires an agency to review its rules 11 every four years. We have three chapters under the 12 Administrative Code that are assigned to the Texas 13 Lottery Commission: Chapter 401 are the lottery rules, 14 Chapter 402 are the bingo rules, and Chapter 403 are the 15 general administration rules. 16 We are requesting today the approval of 17 the Commission to propose for public comment its notice 18 of its intention to review Chapter 403. We last 19 conducted a review of Chapter 403 in the summer of 2007, 20 and so now it's ripe for consideration to comply with 21 the every-four-year requirement in the Administrative 22 Procedures Act. 23 With that, staff recommends that you vote 24 to propose for public comment the agency's notice of 25 intent to review the rules. The purpose of the rule 30 1 review is to determine whether the reasons for the rules 2 continue to exist. If not, the agency, the staff will 3 come back and request that you repeal those rules. If 4 they do continue to exist, the reasons, we will request 5 at the end of the rule review that you re-adopt the 6 rules. If there are rules that require revision, we 7 will initiate a rulemaking for the public comment, to 8 receive public comment on those proposed revisions. 9 I would be happy to answer any questions. 10 CHAIRMAN WILLIAMSON: All right. Thank 11 you. 12 Commissioner, do you have any questions? 13 COMMISSIONER KRAUSE: I don't. 14 CHAIRMAN WILLIAMSON: Could you make the 15 motion, please. 16 COMMISSIONER KRAUSE: I would like to move 17 that we adopt the staff proposal to publish these 18 comments for the purpose of getting public comment -- 19 CHAIRMAN WILLIAMSON: Thank you. 20 COMMISSIONER KRAUSE: -- on the review of 21 Chapter 403. 22 CHAIRMAN WILLIAMSON: All right. I 23 second. 24 All in favor? 25 COMMISSIONER KRAUSE: Aye. 31 1 CHAIRMAN WILLIAMSON: Aye. 2 The vote is 2-0. 3 MS. KIPLIN: Commissioners, I have a memo 4 reflecting the vote. 5 CHAIRMAN WILLIAMSON: All right. Thank 6 you. 7 AGENDA ITEM NO. VIII 8 CHAIRMAN WILLIAMSON: Our next item is the 9 report, possible discussion and/or action, including 10 extensions or amendments on the instant ticket 11 manufacturing and services contracts and outside 12 counseling contract(s) for intellectual properties and 13 amendments to the instant ticket testing services 14 contract. 15 Mr. Fernandez. 16 MR. FERNANDEZ: Good morning, 17 Commissioners. My name is Mike Fernandez. I'm the 18 Director of Administration. 19 As presented in your briefing book under 20 Tab VIII, staff would like to inform you of our intent 21 to amend and extend a number of current contracts. 22 First we plan on extending, executing an option to 23 extend our three ticket-printing vendor contracts for 24 one year. We also intend to amend those contracts to 25 provide for the update for language of exhibits on 32 1 licensed property games. 2 And we also will extend -- or also will 3 amend SciGames, Scientific Games' contract to provide 4 for the ability to deal with second chance drawings. 5 We also are going to extend our outside 6 counsel for one year for intellectual properties, that 7 provides intellectual properties, review and also amend 8 our current contract with our instant ticket testing 9 vendor to provide for the testing of raw stock. So we 10 wanted to advise you that we plan to proceed on those. 11 CHAIRMAN WILLIAMSON: All right. Thank 12 you. 13 Commissioner, do you have any questions or 14 comments? 15 COMMISSIONER KRAUSE: Not at this time. 16 CHAIRMAN WILLIAMSON: All right. Thank 17 you. 18 AGENDA ITEM NO. IX 19 CHAIRMAN WILLIAMSON: Our next item is 20 consideration of and possible discussion and action on 21 external and internal audits or reviews relating to the 22 Texas Lottery and the Internal Audit Department's 23 activities. 24 Catherine. 25 MS. MELVIN: Good morning. Thank you, 33 1 Madam Chairman, Commissioner. This morning I do not 2 have any items of update, but I'm happy to answer any 3 questions. 4 CHAIRMAN WILLIAMSON: All right. Thank 5 you. 6 Commissioner, do you have any questions? 7 COMMISSIONER KRAUSE: No questions. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 AGENDA ITEM NO. X 11 CHAIRMAN WILLIAMSON: Next item, Gary, 12 report, possible discussion and/or action on GTECH. 13 MR. GRIEF: Other than what's in your 14 notebook, Madam Chair, nothing further to report on that 15 item. 16 CHAIRMAN WILLIAMSON: All right. How 17 is -- and I don't know whether you want to answer this 18 or somebody from GTECH -- just how is the implementation 19 going? 20 MR. GRIEF: That's a great question, and 21 I'm glad you asked that. It's going very well, but I 22 would ask that Joe Lapinski from GTECH come forward and 23 perhaps give you some more detail in that regard. 24 MR. LAPINSKI: Good morning, 25 Commissioners. For the record, my name is Joe Lapinski. 34 1 I'm the Account Development Manager for GTECH. 2 Chairman, Commissioner Krause, things are 3 going very well. So far the software and system 4 development work is on schedule. A user acceptance test 5 for the lottery is planned to commence on May 30th, and 6 we're on track to deliver for that effort. 7 The retail equipment that is rolling out 8 in the state is more than 50 percent complete. It's 9 been well-received by retailers, both the base -- the 10 Altura terminal as well as the MM -- ESMM or the 11 multimedia capability, and that has gone along very 12 well. We've had very few complaints from retailers and 13 overwhelmingly positive response, and I believe the same 14 has been true for the lottery staff. 15 So to date, things are very much on 16 schedule, very much on track, and we look forward for it 17 to continue that way through the summer. 18 CHAIRMAN WILLIAMSON: All right. Thank 19 you. 20 Commissioner, do you have any questions? 21 COMMISSIONER KRAUSE: Sounds like a great 22 report. 23 MR. LAPINSKI: Glad to bring it forward. 24 CHAIRMAN WILLIAMSON: Thank you, Joe. 25 35 1 AGENDA ITEM NO. XI 2 CHAIRMAN WILLIAMSON: And let's move on to 3 the next item, a report by the Executive Director, any 4 possible discussions or action on the agency's 5 operational status, agency procedures and FTE status. 6 Gary, this is your item, please. 7 MR. GRIEF: Commissioners, one item in 8 addition to what's in your notebooks today. I did want 9 to make you aware that every year the National 10 Association of State and Provincial Lotteries brings 11 together all the state lottery directors from the United 12 States for a meeting, a week of meetings. This year 13 I'll be hosting those meetings in Dallas the week of 14 June the 13th. There will be meetings of the Mega 15 Millions Consortium, of which I'm the lead director, 16 also the MUSL Consortium which has jurisdiction over 17 Powerball. 18 I hope that there will be some exciting 19 and interesting developments regarding one or both of 20 those games during that week, that I'll be able to come 21 back and report to you as to where one or both of those 22 games might be going in the future. We'll also have a 23 full meeting of the NASPL organization while we're there 24 as well. 25 Other than that, that's all I have for you 36 1 this morning. 2 CHAIRMAN WILLIAMSON: All right. Thank 3 you. 4 Commissioner, do you have any questions? 5 COMMISSIONER KRAUSE: No, ma'am. 6 CHAIRMAN WILLIAMSON: All right. 7 AGENDA ITEM NO. XII 8 CHAIRMAN WILLIAMSON: The next item, 9 consideration of the status and possible entry of orders 10 in cases posted on the agenda. 11 Kim. 12 MS. KIPLIN: Commissioners, I was handed a 13 witness affirmation form for one of the matters, I 14 believe, within the last five minutes. And so I have 15 not spoken with the person who is here on behalf of that 16 particular matter. And so, if possible, I think what I 17 would like to do is ask you-all to hold on that matter 18 and give us a chance to confer so that I understand what 19 is occurring. 20 If I can pass this witness affirmation, 21 it's for Mr. Elvis Thompson on behalf of H-Town. 22 MR. THOMPSON: I'm right here. 23 MS. KIPLIN: Thank you. 24 And if we could -- if I could go through 25 these orders, with the exception of the one for the 37 1 witness affirmation form, that I just received this in 2 the last five minutes. 3 MR. THOMPSON: Okay. 4 MS. KIPLIN: And then perhaps maybe we 5 could take a recess. It's the Commission's prerogative. 6 CHAIRMAN WILLIAMSON: Sure. Okay. 7 MS. KIPLIN: And then we can see if we can 8 perhaps confer. 9 CHAIRMAN WILLIAMSON: All right. 10 MS. KIPLIN: If I can -- and if I could 11 address Letters A through Z. Commissioners, these are 12 all revocation matters for lottery retailers for 13 insufficient funds. We are taking a different approach, 14 process-wise, for the signature of orders, just because 15 of the sheer volume. And so what we recommend is that 16 we have a mass order that has as an Exhibit A each one 17 of these particular docket numbers and then has the 18 general language in the order itself that is the same 19 for each one of these orders. 20 This is a process that we've used on the 21 bingo side of the house with regard to the Registry of 22 Bingo Workers, specifically because of the massive 23 amount of cases that have been presented. And this way, 24 this will -- if you're in agreement with this, you'll 25 sign one order that adopts, by incorporation by 38 1 reference for each one of these particular dockets, the 2 proposal for decision. 3 I believe due process has been satisfied. 4 These items have been noticed. The order will be 5 mailed -- the executed order will be mailed to each one 6 of these respondents. And should they wish to file a 7 motion for rehearing, just like they would if they 8 receive an order that just had their name, they will be 9 able to do that. 10 So if that is acceptable to the 11 Commission, then my recommendation at this time is that 12 for the dockets, Letters A through Z, you-all vote to 13 adopt the Administrative Law Judge's recommendation to 14 revoke the license in each of these cases, and you will 15 sign one order that will have as an Exhibit A each one 16 of these enumerated dockets, and then we will mail that 17 order, with the Exhibit A, out to each one of these and 18 track it. We have individual files. This is really 19 just, for lack of a better word, judicial economy for 20 the Commission. 21 CHAIRMAN WILLIAMSON: All right. 22 Commissioner, do you have any comments or 23 objections to this process? 24 COMMISSIONER KRAUSE: Well, the only 25 question I have is, is that this is probably the most 39 1 number of revocations for insufficient funds we've ever 2 had. Is there something out there that's causing that 3 or anything like that? 4 MS. KIPLIN: I'll ask Mr. Anger, the 5 Lottery Operations Division Director, to address that 6 question, in particular of the volume. 7 MR. ANGER: Commissioners, for the record, 8 my name is Michael Anger, the Lottery Operations 9 Director. 10 Commissioner Krause, the size of the 11 docket this month -- you're right -- it's the largest 12 I've ever seen. Now, we didn't have a Commission 13 meeting last month, so we have some concentration or 14 consolidation, essentially the work of, you know, what 15 we would have in two months of Commission meetings. But 16 even with that, this number is a little higher than what 17 we normally see. 18 So there is not anything that we're 19 hearing out in the marketplace from our licensees that 20 gives us an indication that there is something taking 21 place in the business environment of Texas at this point 22 in time to cause this. I think it's just an anomaly 23 that it's occurred like this. But it's something we're 24 going to follow with great interest over the next couple 25 of months and monitor closely. 40 1 COMMISSIONER KRAUSE: Well, if we get rid 2 of too many licensees, then we're not selling tickets. 3 MR. ANGER: Exactly. 4 CHAIRMAN WILLIAMSON: Do they usually come 5 back around -- I mean, if it's revocated, but can they 6 come back around and become a retail operator again? I 7 assume there is a process in place to do that, if they 8 so choose or -- 9 MR. ANGER: A retailer can reapply to 10 become a licensee. You end up with -- in these NSF 11 situations, you end up with two categories of retailers. 12 You have the category of retailers that they don't pay 13 the balance that they owe us, and we revoke them and we 14 put them on hold for monies owed to the state, and we 15 pursue some other collections activities on an ongoing 16 basis. 17 And then you have the retailers who have 18 had four NSFs in a one-year period of time, and those 19 are retailers where we make a decision to cancel their 20 licensee, essentially because of the problems in 21 collecting monies associated with those licenses. 22 So there are two groups here. But 23 ultimately you can't be a licensee if you owe us back 24 monies, so that's something you have to correct. And 25 then, secondly, if you come and apply for a license with 41 1 us, if a member of the public applies for a license, we 2 check your credit history, your financial worthiness to 3 essentially be a lottery retailer, because essentially 4 we extend credit to these businesses in the sale of 5 these products. 6 We ensure that you're in good standing, 7 you don't have any monies that you owe to us. Or if you 8 have a history with us that gives us an indication of 9 concern, we would ask a retailer like that to post 10 financial security with us, such as a CD, to protect the 11 Commission and ensure that, you know, we can collect our 12 money should we need to. 13 CHAIRMAN WILLIAMSON: Okay. 14 MR. ANGER: But, yes, a retailer can 15 reapply. 16 CHAIRMAN WILLIAMSON: Okay. Thank you. 17 So I guess at this point, do we need a 18 motion for all of the -- 19 MS. KIPLIN: Yes, for Letters A through Z 20 as they appear on the Commission's open meetings notice. 21 You would make a motion to accept the Administrative Law 22 Judge's recommendation to revoke the licenses for 23 insufficient funds for each of these cases. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 42 1 Commissioner? 2 COMMISSIONER KRAUSE: I make a motion that 3 we accept the Administrative Law Judge's recommendation 4 to revoke these licenses for insufficient funds for all 5 of the docket numbers that are listed on our open 6 meetings notice, A through Z. 7 CHAIRMAN WILLIAMSON: Second the motion. 8 The vote is? 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 2-0. 12 Kim, what I would like to do next is 13 address all of the other items except for 14 Mr. Thompson's. 15 MS. KIPLIN: Thank you. 16 CHAIRMAN WILLIAMSON: Then we'll go from 17 there. 18 MS. KIPLIN: And with your permission, 19 I'll hold on to all the orders that you have taken 20 action, until the end of that action, and I'll send them 21 through to you. 22 So, Commissioners, with that, Letter AA in 23 the matter of Los Rios Texaco is the next contested case 24 proceeding. And, Commissioner, this was a matter of the 25 Commission issuing a notice of a jeopardy determination 43 1 for monies owed to the Commission in connection with 2 lottery sales by a retailer. 3 The taxpayer is given an opportunity to 4 request a hearing for what's called a re-determination 5 on the tax owed. The taxpayer did request the 6 re-determination. We noticed up the hearing, and then 7 the taxpayer did not appear at the hearing. 8 The Commission staff put on evidence of 9 the amount that was owed, and the Administrative Law 10 Judge upheld the amount that was owed and has entered an 11 order that the retailer, Los Rios Texaco, does owe the 12 Commission the amount of $2,181.18. And the Commission 13 staff requested that you make a motion and vote to 14 approve the Administrative Law Judge's recommendation 15 and order in this matter. 16 CHAIRMAN WILLIAMSON: Commissioner, do you 17 have any questions? 18 COMMISSIONER KRAUSE: I do not. 19 CHAIRMAN WILLIAMSON: Will you make a 20 motion, please. 21 COMMISSIONER KRAUSE: I move that we adopt 22 the Administrative Law Judge's proposal for decision in 23 the docket number involving Los Rios Texaco. I guess 24 that's item AA. 25 MS. KIPLIN: That's Item AA. 44 1 CHAIRMAN WILLIAMSON: All right. I second 2 the motion. All in favor? 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Aye. 5 Motion passes 2-0. 6 Next case, please. 7 MS. KIPLIN: Commissioners, the next case 8 is Letters BB. It's in the matter of Stop N Bye. This 9 is an agreed -- proposed agreed order between the 10 Lottery Division and the respondent, and it has to do 11 with an application that was filed that indicated 12 criminal history. 13 In lieu of revocation, the agreement, 14 proposed agreement, is that the persons that have a 15 criminal history that would be in ineligibility not be 16 in a category that would require eligibility. In other 17 words, they cannot be an owner, they cannot be an 18 officer and they cannot be a director and they cannot 19 participate in the management of the affairs. 20 The staff is willing to enter into an 21 agreement to allow the license to continue so long as 22 the folks that are statutorily disqualified are not part 23 of it. And the staff would recommend that you vote to 24 approve that order. 25 CHAIRMAN WILLIAMSON: Thank you. 45 1 Commissioner, do you have any questions? 2 COMMISSIONER KRAUSE: I don't. And I make 3 a motion that we approve staff's recommendation on an 4 agreement and consent order concerning Stop N Bye. It's 5 identified as Item BB on our open meetings notice. 6 CHAIRMAN WILLIAMSON: All right. Second 7 the motion. 8 All in favor? 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 2-0. 12 The next item, please. 13 MS. KIPLIN: Commissioner, the next item 14 are double letters C in the matter of HEB Food Store 15 No. 227. Commissioner, this was a matter of two minors 16 purchasing tickets through an instant ticket vending 17 machine. A complaint was filed. The agency followed up 18 on that complaint. 19 The staff has recommended the Commission 20 enter into an agreed order. And the HEB Food Store 21 No. 227 has agreed to a 10-day suspension. Staff 22 recommends that you vote to approve that proposed order. 23 CHAIRMAN WILLIAMSON: All right. Thank 24 you. 25 Commissioner, do you have any questions? 46 1 COMMISSIONER KRAUSE: How do we -- I guess 2 we just had a citizen complaint. Is that how we found 3 out about it? 4 MS. KIPLIN: We had a citizen complaint. 5 We went out and investigated. And, in fact, the 6 employees at the HEB did acknowledge that there were a 7 couple of minors -- it appeared to be a training issue 8 in terms of how to operate the remote to cut off the 9 instant ticket vending machine, and the store is on 10 board with the training. And it was a couple of minors. 11 I think they were clearly minors, unless they were big 12 12-year-olds. 13 COMMISSIONER KRAUSE: Which they could be. 14 MS. KIPLIN: They could be; they could be. 15 CHAIRMAN WILLIAMSON: Okay. All right. 16 COMMISSIONER KRAUSE: Well, I make a 17 motion that we accept the staff's recommendation 18 concerning the agreement and consent order involving HEB 19 Grocery Store No. 227. It's identified as Item No. CC 20 on our open meetings notice. 21 CHAIRMAN WILLIAMSON: All right. I second 22 the motion. 23 All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 47 1 The motion passes 2-0. 2 MS. KIPLIN: Commissioner, in the matter 3 of the double letters D -- this is One Star Food Mart -- 4 this once again is a criminal history very similar to 5 the Stop N Bye that you just voted on. In lieu of 6 revocation, the agreement is that the individual that 7 has a disqualifying criminal history not be an officer 8 or 10 percent shareholder or director. And the staff is 9 inclined to vote on a proposed order to allow the 10 license to continue so long as the ineligible person is 11 not in one of those categories. 12 Staff recommends that you vote to approve 13 the proposed order. 14 CHAIRMAN WILLIAMSON: Okay. 15 Commissioner, do you have any questions? 16 COMMISSIONER KRAUSE: No, ma'am. And I 17 make a motion that we adopt staff's recommendation 18 concerning the agreement and consent order that they 19 negotiated with Baba C. (phonetic) Stores, Inc., more 20 specifically identified as Item DD in our open meetings 21 notice. 22 CHAIRMAN WILLIAMSON: Second. 23 All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. Motion passes 48 1 2-0. 2 CHAIRMAN WILLIAMSON: Next item, please. 3 MS. KIPLIN: Commissioners, the next item 4 is double letter E. That's in the matter of Circle 786 5 Chevron. This matter involved the licensee's clerk 6 discounting the prize and then claiming the prize. The 7 clerk is no longer an employee of the licensee. 8 The staff, according to the penalty 9 guidelines matrix that they use, have recommended a 10 10-day suspension of the license. In matters of this 11 where it's not the licensee but it's a clerk, an 12 employee, the suspension is generally a 10-day for these 13 kind of matters, so long as the employee is no longer 14 employed by the licensee. 15 Staff would recommend that you vote to 16 approve the proposed agreed order. 17 CHAIRMAN WILLIAMSON: Thank you. 18 Commissioner, do you have any questions or 19 you would like to make a motion? 20 COMMISSIONER KRAUSE: My motion is that we 21 adopt staff's recommendation concerning the agreement 22 and consent order negotiated with Ria (phonetic), Inc., 23 as identified as Item No. EE on our open meetings 24 notice. 25 CHAIRMAN WILLIAMSON: I second the motion. 49 1 COMMISSIONER KRAUSE: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 Vote passes 2-0. 4 All right. Next item. 5 MS. KIPLIN: Commissioners, the next item, 6 double letters F, Exxon No. 19243. This is a matter of 7 a licensee's clerk pinholing the ticket. And what that 8 means is, they're scratching a little bit of the instant 9 ticket to see if they can't put in the number to 10 determine whether it's a winner. If the ticket is not a 11 winner, they will ordinarily sell or generally sell that 12 ticket. 13 The licensee's clerk is no longer working 14 for the licensee. The staff has entered into an 15 agreement for a 10-day suspension of the license. Staff 16 would request that you vote to approve the proposed 17 agreed order with a disposition of 10-day suspension. 18 CHAIRMAN WILLIAMSON: Commissioner, do you 19 have any questions or do you want to make a motion? 20 COMMISSIONER KRAUSE: Well, I'm always 21 fascinated how we find out about these cases -- 22 pinholing. 23 MS. KIPLIN: I believe this one was a 24 complaint as well. 25 COMMISSIONER KRAUSE: Citizen complaint 50 1 or -- 2 MS. KIPLIN: I believe so. I can go back 3 and check, but I believe it was a citizen complaint. If 4 Mr. Anger has more information, I'm happy to ask him, 5 but I believe it was a . . . 6 MR. ANGER: Commissioners, for the record, 7 my name is Michael Anger, the Lottery Operations 8 Director. 9 We do typically find out about these in 10 two ways. One is by player complaint, and we work very 11 hard. When we construct the instant ticket games, of 12 course, we want to make them appealing and fun for the 13 players, but we also are very focused on the security 14 and integrity of the design of the tickets. And so 15 there are things that we do in the design of the tickets 16 to make more evident to the player if a retailer has 17 pinpricked a ticket or attempted to remove small 18 portions of latex so it's more obvious to players so 19 they can see that and will report that to us. 20 And then behind the scenes, we also have a 21 wealth of data that we receive through the gaming system 22 with regard to transaction activity at retail locations, 23 and we monitor that activity as well. And so sometimes 24 these events are reported to us via analysis that we do 25 in-house here with regard to the data, and then we go 51 1 out and investigate and identify these situations. In 2 this case, though, it was a player-reported issue, and 3 then we followed up. 4 COMMISSIONER KRAUSE: So I guess the way 5 that works is, that one of our customers, our players is 6 sold a ticket and they look at it and they're 7 unsatisfied that it's not altered -- they believe that 8 it's been altered? 9 MR. ANGER: That's correct. 10 COMMISSIONER KRAUSE: Okay. Good. 11 CHAIRMAN WILLIAMSON: All right. Thank 12 you, Michael. 13 Is there a motion? 14 COMMISSIONER KRAUSE: I make a motion that 15 we adopt staff's recommendation concerning the agreement 16 and consent order that they've negotiated with 17 ExxonMobil, more specifically identified as the case, 18 Item No. FF on our open meetings notice. 19 CHAIRMAN WILLIAMSON: I second the motion. 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. Motion passes 23 2-0. 24 Next item, please. 25 MS. KIPLIN: Commissioners, the next item 52 1 is double letters G in the matter of Foodmart. This is 2 a case involving a clerk that paid less than the prize 3 amount and then the clerk's wife claimed the full amount 4 of the prize. The clerk is no longer an employee of the 5 licensee, and the clerk's wife is not eligible for 6 employment. These matters are taken -- they're a little 7 more aggravated, and the staff has recommended a 30-day 8 suspension. The licensee did agree to it, and the staff 9 does request that you vote to approve the 30-day 10 suspension. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioner, do you have any questions or 13 would you like to make a motion? 14 COMMISSIONER KRAUSE: I'll be happy to 15 make a motion, that we adopt the agreement and consent 16 order arrived at by the staff with Caravan LLC, more 17 specifically identified as the case under Item GG of our 18 open meetings notice. 19 CHAIRMAN WILLIAMSON: I second the motion. 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 Motion passes 2-0. 24 We will skip HH at this point. 25 MS. KIPLIN: Thank you. And then I will 53 1 send your way the orders for all -- with the exception 2 of the last one that we'll at a break confer with the 3 respondent. 4 AGENDA ITEM NO. XIII 5 CHAIRMAN WILLIAMSON: Okay. Then we will 6 go on to Item XIII, which is public comment. And we 7 have none. 8 So at this time we will take a 15-minute 9 break -- the time is 10:50 -- and we'll be back. 10 (Recess: 10:50 a.m. to 11:15 a.m.) 11 CHAIRMAN WILLIAMSON: The meeting is back 12 in session at 11:15. And we will go on to Docket No. -- 13 Item HH on orders, please. 14 AGENDA ITEM NO. XII (continued) 15 MS. KIPLIN: Thank you, Commissioners, 16 appreciate the opportunity to be able to confer with the 17 respondent in this matter at the break. And this is 18 letters double H. It's for H-Town's Royal Crown. 19 We did have an opportunity to confer. And 20 what is before you today is a proposed agreed order 21 between the staff and the respondent, the licensee 22 H-Town's Royal Crown LLC. Based on the ability to speak 23 with -- I'm sorry. I don't have it in front of me now. 24 Do you have the witness affirmation -- 25 CHAIRMAN WILLIAMSON: Mr. Thompson. 54 1 MS. KIPLIN: Sorry. Mr. Thompson. He 2 said it was a fair representation for me to put on the 3 record -- and I'm putting on the record so if he 4 disagrees, of course, he can say something in the 5 future -- that he understands now the terms of the 6 agreement and he has no objection to the Commission 7 proceeding if the Commission, in fact, wants to proceed. 8 And so, Commissioners, let me tell you 9 what this proposed agreed order is about. This has to 10 do with the licensee's clerk reporting tickets stolen. 11 The tickets were then purchased as a gift by a customer. 12 And when the claimant actually tried to claim the prize, 13 the claimant could not, because there was a stolen 14 ticket report. 15 There is an indication that it is because 16 of the clerk reporting the tickets stolen. And then, of 17 course, the money for the purchase was possibly kept by 18 the clerk. The respondent has entered into an 19 agreement, and the two prongs of the agreement are a 20 30-day suspension of the license and the clerk not being 21 eligible for employment at this particular retail 22 location. 23 And so with that, the staff would 24 recommend that the Commission approve the proposed 25 agreed order to impose a 30-day suspension and approve 55 1 the agreement by the respondent that this employee would 2 not be -- that this particular person would not be 3 employed by the respondent. And that is a condition of 4 the agreement. And if the terms of the agreement are 5 violated, then of course we would proceed on a contested 6 case matter in the future. But at this point, 7 Mr. Thompson is fine and he knew that he could stay or 8 he could go, it was his prerogative, and I think he 9 elected to leave. 10 CHAIRMAN WILLIAMSON: All right. Thank 11 you. 12 Commissioner, do you have any questions 13 or -- 14 COMMISSIONER KRAUSE: I do. Does this 15 company have more than one store? 16 MS. KIPLIN: I do not know that. I 17 believe -- each location is licensed separately. 18 Mr. Anger may know that; I do not. 19 COMMISSIONER KRAUSE: Well, the reason why 20 I ask is that -- I mean, if they agree not to employ 21 this employee at this location, then are there other 22 locations where they're willing to have this person 23 employed? And, obviously, we don't want this person 24 working for this company at all if they're going to do 25 this kind of thing. 56 1 MR. ANGER: Correct. Commissioners, for 2 the record, my name is Michael Anger, the Lottery 3 Operations Director. 4 This is a sole, stand-alone licensee. 5 It's not a corporate or a chain entity with regard to 6 our records. So we have no indication that this 7 individual who is the licensee, Mr. Thompson, is 8 involved in the ownership interest of any other licenses 9 that we have. 10 COMMISSIONER KRAUSE: The employee was not 11 a member of the family of the owners? 12 MR. ANGER: It is a member of the family 13 of the owner, and that's why we sought -- 14 COMMISSIONER KRAUSE: 30-days. 15 MR. ANGER: -- this specific 16 restriction -- well, and we also called out the specific 17 restriction with regard to this individual continuing to 18 be employed in the business. 19 MS. KIPLIN: You know, our choices were -- 20 and I think this was a confusion on Mr. Thompson's 21 part -- through the State Office of Administrative 22 Hearings, we cannot have a condition -- of a contested 23 order, an employee restriction. So if we went for a 24 30-day suspension, we could not impose the employee 25 restriction. 57 1 What can be imposed under the State 2 Lottery Act is either a suspension and a period of time 3 (cough) revocation. And because of the gravity of the 4 circumstances and the conduct, we were pursuing a 5 revocation. We were inclined to be receptive to the 6 30-day suspension so long as there was the employment 7 restriction. And, obviously, if that's violated, their 8 terms of this agreed order, that we would move forward 9 solely to the State Office of Administrative Hearings in 10 a contested case proceeding to revoke the license for a 11 violation of the term of the agreed order. 12 CHAIRMAN WILLIAMSON: Okay. 13 COMMISSIONER KRAUSE: I make a motion that 14 we adopt the Commission's recommendation with respect to 15 their agreement and consent order entered into with 16 H-Town's Royal Crown LC, more specifically identified as 17 Item No. HH on our open meeting notice. 18 CHAIRMAN WILLIAMSON: Second the motion. 19 All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 Motion passes 2-0. 23 AGENDA ITEM NO. XIV 24 CHAIRMAN WILLIAMSON: At this time I move 25 the Texas Lottery Commission go into executive session 58 1 to deliberate the duties and evaluation of the Executive 2 Director, Internal Audit Director and Charitable Bingo 3 Operations Director and to deliberate the duties of the 4 General Counsel and Human Resources Director pursuant to 5 Section 551.074 of the Texas Government Code and to 6 receive legal advice regarding pending or contemplated 7 litigation pursuant to Section 551.071(1)(A) and/or to 8 receive legal advice regarding settlement offers 9 pursuant to Section 551.071(1)(B) of the Texas 10 Government Code and/or to receive legal advice pursuant 11 to Section 551.071(2) of the Texas Government Code, 12 including but not limited to those items posted on the 13 open meeting notice for the purpose of receiving legal 14 advice. 15 Is there a second? 16 COMMISSIONER KRAUSE: Second. 17 CHAIRMAN WILLIAMSON: All in favor, say 18 "Aye." 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 The vote is 2-0. The Texas Lottery 22 Commission will go into executive session at 11:21 a.m. 23 Today is May 19, 2011. 24 (Off the record for executive session: 25 11:21 a.m. to 11:34 a.m.) 59 1 AGENDA ITEM NO. XV 2 CHAIRMAN WILLIAMSON: The Texas Lottery 3 Commission is out of executive session. The time is 4 11:34 a.m. There is no action to be taken as a result 5 of the executive session. 6 AGENDA ITEM NO. XVI 7 CHAIRMAN WILLIAMSON: So at this time, do 8 we have a motion to adjourn? 9 COMMISSIONER KRAUSE: I make a motion that 10 we adjourn. 11 CHAIRMAN WILLIAMSON: I second. 12 All in favor? 13 COMMISSIONER KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 Vote passes 2-0. 16 (Meeting adjourned at 11:34 a.m.) 17 18 19 20 21 22 23 24 25 60 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 30th day of May 2011. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/12 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 8140 North Mo-Pac Expressway Suite II-120 22 Austin, Texas 78759 23 24 25