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 § FRIDAY, MARCH 30, 2012 § 9 10 11 12 COMMISSION MEETING 13 FRIDAY, MARCH 30, 2012 14 15 16 17 BE IT REMEMBERED THAT on Friday, the 30th 18 day of March 2012, the Texas Lottery Commission 19 meeting was held from 10:05 a.m. until 11:35 a.m., at 20 the Offices of the Texas Lottery Commission, 611 East 21 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 22 ANN WILLIAMSON and COMMISSIONER J. WINSTON KRAUSE. The 23 following proceedings were reported via machine 24 shorthand by Aloma J. Kennedy, a Certified Shorthand 25 Reporter. 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 DIRECTOR, CHARITABLE BINGO OPERATIONS: 9 Mr. Philip D. Sanderson 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 - FRIDAY, MARCH 30, 2012 ............... 7 4 AGENDA ITEM NO. I - Meeting Called to Order ........ 7 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on Calendar 6 Year 2011 conductor information..................... 13 7 AGENDA ITEM NO. III - Report by the Charitable Bingo Operations Director and possible 8 discussion and/or action on the Charitable Bingo Operations Division’s activities, 9 including updates on licensing, accounting and audit activities, pull-tab review, special 10 projects, and upcoming operator training ........... 17 11 AGENDA ITEM NO. IV - Report, possible discussion and/or action on lottery sales 12 and revenue, game performance, new game opportunities, advertising, market research, 13 trends, and game contracts, agreements, and procedures ..................................... 42 14 AGENDA ITEM NO. V - Report, possible discussion 15 and/or action on transfers to the State and agency’s budget status ............................. 48 16 AGENDA ITEM NO. VI - Consideration of and 17 possible discussion and/or action on the agency's Strategic Plan for FY 2013-2017 ........... 50 18 AGENDA ITEM NO. VII - Consideration of and 19 possible discussion and/or action, including adoption, on new rule 16 TAC §401.320 20 relating to All or Nothing On-Line Game Rule ....... 18 21 AGENDA ITEM NO. VIII - Consideration of and possible discussion and/or action, including 22 proposal, on amendments to 16 TAC §401.355 relating to Restricted Sales ....................... 23 23 AGENDA ITEM NO. IX - Report, possible 24 discussion and/or action on the 82nd Legislature ................................... 26 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. X - Report, possible discussion and/or action on the Sunset 4 review process involving the agency ................ 26 5 AGENDA ITEM NO. XI - Report, possible discussion and/or action on HUB and/or 6 minority business participation including the agency’s FY 2011 Minority Business 7 Participation Report ............................... 28 8 AGENDA ITEM NO. XII - Consideration of and possible discussion and/or action on external 9 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 10 Internal Audit Department’s activities ............. 33 11 AGENDA ITEM NO. XIII - Report, possible discussion and/or action on GTECH Corporation ...... 34 12 AGENDA ITEM NO. XIV - Report by the Executive 13 Director and/or possible discussion and/or action on the agency’s operational status, 14 agency procedures, awards, and FTE status .......... 7 15 AGENDA ITEM NO. XV - Consideration of the status and possible entry of orders in: 16 A. Docket No. 362-12-3493 – Holand Minimart B. Docket No. 362-12-3486 – George’s Liquor 17 C. Docket No. 362-12-3488 – S&S Food Mart D. Docket No. 362-12-3489 – Greens Parkway 18 Food Mart E. Docket No. 362-12-3490 – DJ’s BBQ Country 19 Store F. Docket No. 362-12-3491 – Fisco C-Store #4 20 G. Docket No. 362-12-3492 – Nuevo Leon Meat Market 21 H. Docket No. 362-12-3211 – Pamir Smoke Shop I. Docket No. 362-12-3212 – Heart’s Delight 22 Travel Plaza J. Docket No. 362-12-3210 – S & S Minimart 23 K. Docket No. 362-12-3213 – A-1 Liquor L. Docket No. 362-12-3209 – Fall Creek Store 24 M. Docket No. 362-12-3207 – Pik Nik Foods #5 N. Docket No. 362-12-3206 – Spin N Market #6 25 O. Docket No. 362-12-3205 – Highlife Food Mart 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XV (continued) P. Docket No. 362-12-3208 – Tiger Mart #30 4 Q. Docket No. 362-12-2934 – Baytown Food Mart R. Docket No. 362-12-2930 – Houston Food Mart 5 S. Docket No. 362-12-2936 – The Point Stop T. Docket No. 362-12-2931 – Jupiter Fina 6 U. Docket No. 362-11-9465 – Jumpin Johns V. Docket No. 362-11-9466 – Sean’s Food Mart 7 W. Docket No. 362-11-1310.B – Thomas Taylor X. Case No. 2012-214 – Elks Lodge 0201 8 Y. Case No. 2011-1134 – Shady Oaks Bingo Unit Z. Case No. 2011-1297 – American Legion Post 9 808 Booker T. Washington AA.Case No. 2011-1298 – American Legion Post 10 808 Aux .................................. 37/54 11 AGENDA ITEM NO. XVI - Public comment ............... 61 12 AGENDA ITEM NO. XVII - Commission may meet in Executive Session: 13 A. To deliberate the duties and evaluation of the Executive Director pursuant to 14 Section 551.074 of the Texas Government Code. 15 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 16 to Section 551.074 of the Texas Government Code. 17 C. To deliberate the duties and evaluation of the Charitable Bingo Operations 18 Director pursuant to Section 551.074 of the Texas Government Code. 19 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 20 the Texas Government Code. E. To deliberate the duties of the Human 21 Resources Director pursuant to Section 551.074 of the Texas Government Code. 22 23 24 25 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE F. To receive legal advice regarding pending 3 or contemplated litigation pursuant to Section 551.071 (1) (A) and/or to receive 4 legal advice regarding settlement offers pursuant to Section 551.071(1)(B) of the 5 Texas Government Code and/or to receive legal advice pursuant to Section 551.071(2) 6 of the Texas Government Code, including but not limited to: 7 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 8 Commission et al.; Willis Willis v. Texas Lottery Commission; GTECH 9 Corporation; BJN Sons Corporation d/b/a Lucky Food Store #2, Barkat N. 10 Jiwani and Pankaj Joshi Employment law, personnel law, 11 procurement and contract law, evidentiary and procedural law, and 12 general government law .................. 61 13 AGENDA ITEM NO. XVIII - Return to open session for further deliberation and possible action 14 on any matter discussed in Executive Session ....... 62 15 AGENDA ITEM NO. XIX - Adjournment .................. 62 16 REPORTER'S CERTIFICATE ............................. 63 17 18 19 20 21 22 23 24 25 7 1 P R O C E E D I N G S 2 FRIDAY, MARCH 30, 2012 3 (10:05 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 March 30, 2012. The time 8 is 10:05. Commissioner Krause is present, Commissioner 9 Delgado is unable to attend, so we do have a quorum. 10 Today we're going to probably be doing -- 11 not going straight down in the order here, so we are 12 going over to Item XIV. 13 Is that right, Kim? 14 AGENDA ITEM NO. XIV 15 MS. KIPLIN: Yes. You're calling the Item 16 XIV, which is the report by the Executive Director -- 17 CHAIRMAN WILLIAMSON: Right. 18 MS. KIPLIN: -- and/or possible discussion 19 and/or action on the agency's operational status, agency 20 procedures, awards, and FTE status. 21 CHAIRMAN WILLIAMSON: That's the item 22 we're going to do right now. 23 Gary, do you have a report? 24 MR. GRIEF: Commissioners, good morning. 25 Other than what's in your notebook, I do not have a 8 1 report. But I do think it's worth noting that we have 2 an all-time world record high Mega Millions jackpot of 3 $540 million today. We have been able to grab some 4 national -- not just state -- but some national 5 publicity. My Media Relations team has gotten me on 6 Good Morning America this morning. We've been on CNN. 7 We're getting the greatest free publicity that we've 8 ever had. 9 I've very confident also that at 10:30 10 today, when I sit down with my colleagues on a 11 conference call around the country and we look at where 12 sales actually came in last night, that that 13 $540 million number is going to jump. 14 CHAIRMAN WILLIAMSON: And we'll get to 15 announce it here. 16 MR. GRIEF: I will be back after that call 17 and we'll be able to make that announcement, yes, ma'am. 18 CHAIRMAN WILLIAMSON: Great! All right. 19 One thing, I want to recognize Gary. Gary received the 20 2012 Major Peter O'Connell Lottery Industry Lifetime 21 Achievement Award for all his many accomplishments in 22 the lottery industry during his career. Recipients of 23 the award are recognized for having distinguished 24 themselves with service to the lottery and for their 25 important contributions to the success of the lottery 9 1 industry and their causes they support. Recipients are 2 nominated and selected by their peers. 3 Gary, we congratulate you on this 4 achievement. 5 And if you'll look right over here, this 6 is the award that he received. It was given to him last 7 week at the Public Gaming Conference in New York City, 8 which I had the honor to attend. 9 And I just want to commend you for that. 10 Gary is very well-respected by his peers. 11 And I think sometimes we all get involved in what we do 12 right here, and we just really don't realize the esteem 13 that the lottery and your executive director has. And 14 not only him but everybody that works here, you 15 contribute to that. And so those of you, please take 16 that back to your staffs, that without them we would not 17 be where we are. 18 Now, we have something else. I'm sorry. 19 Commissioner Krause. Would you like to add anything 20 first? 21 COMMISSIONER KRAUSE: Well, just briefly, 22 because this other thing is really, really important. 23 But when I asked the Governor, you know, what he wanted 24 me to do as a commissioner on this Commission, he said 25 that, you know, "I don't really, you know, care for the 10 1 gambling thing. But the Legislature has given us the 2 lottery. We're going to run it as best we can." And 3 what that means is having the best people that we can 4 find to run this agency. 5 Now, Gary was already here. He's been 6 here a long time. But it is my pleasure to be on the 7 Commission with the Chairman when we hired him to be the 8 Executive Director -- unless you were already. 9 (Laughter) 10 MR. GRIEF: I can't remember. 11 COMMISSIONER KRAUSE: You were either 12 acting or -- 13 CHAIRMAN WILLIAMSON: He was not. 14 COMMISSIONER KRAUSE: He was acting, 15 because there was a vacancy. 16 MR. GRIEF: If you say so, Commissioner. 17 If you say so. 18 (Laughter) 19 COMMISSIONER KRAUSE: So anyway, the 20 bottom line is, is that he's here and he's running the 21 agency. He's doing a great job, and I'm very proud of 22 him. Good work, buddy. 23 MR. GRIEF: Thank you. 24 CHAIRMAN WILLIAMSON: Thank you. 25 Now, Commissioner Krause, if you'll join 11 1 me here. This is another photo opportunity of many he's 2 had in the last 12 to 24 hours. This is a special 3 proclamation. It's from the Senate of the State of 4 Texas, Senate Proclamation No. 193. 5 "WHEREAS, the Senate of the State of Texas 6 is pleased to recognize Gary Grief who has been named 7 the recipient of the 2012 Major Peter J. O'Connell 8 Lottery Industry Lifetime Achievement Award by the 9 Public Gaming Resource Institute; and 10 "WHEREAS, this prestigious award is given 11 to those who have distinguished themselves over a long 12 period of time and have made important contributions to 13 the lottery industry; and 14 "WHEREAS, Mr. Grief is Executive Director 15 of the Texas Lottery Commission. He was an original 16 member of the state's Lottery Task Force in 1991 and 17 played a vital role in launching the Texas Lottery; and 18 WHEREAS, over the years, Mr. Grief has 19 held numerous important positions with the Commission, 20 including statewide manager of claim centers, Director 21 of Lottery Operations and Deputy Executive Director. As 22 Executive Director, he oversees a $3.8 billion 23 enterprise" -- 24 MR. GRIEF: Soon to be $4 billion. 25 (Laughter) 12 1 CHAIRMAN WILLIAMSON: -- "that generates 2 revenue for public education and other public purposes; 3 and 4 "WHEREAS, Mr. Grief has provided 5 leadership for many national lottery initiatives, in 6 addition to his work in Texas, and has been elected to 7 several offices in the National Association of State and 8 Provincial Lotteries, and he truly deserves recognition 9 for his outstanding work in this important field. 10 "NOW, THEREFORE, be it proclaimed that the 11 Senate of the State of Texas hereby commends Gary Grief 12 on his many contributions to the Texas Lottery 13 Commission and our state and extend congratulations to 14 him on being named the recipient of the 2012 Major Peter 15 J. O'Connell Lottery Industry Lifetime Achievement 16 Award; and 17 "BE IT FURTHER PROCLAIMED that a copy of 18 this proclamation be prepared for him as an expression 19 of esteem from the Texas Senate. 20 "Senator Kirk Watson." 21 (Applause) 22 CHAIRMAN WILLIAMSON: We're all proud of 23 you and your accomplishments and look forward to the 24 rest of the day. 25 MR. GRIEF: I'm just proud to work here 13 1 and proud to have a great team. I've told everybody 2 that this award is just a reflection of how well we all 3 work together and how everybody keeps the mission first 4 and foremost. So thank you to our team and thank you to 5 two of our three great commissioners who are here with 6 me today. It means the world to me. Thank you. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you. 9 Now he'll go find out what the new prize 10 is and we'll continue on with business. 11 MR. GRIEF: I'll be right back. 12 AGENDA ITEM NO. II 13 CHAIRMAN WILLIAMSON: The next item is 14 report, possible discussion and/or action on Calendar 15 Year 2011 conductor information. 16 Phil, this is your item, please. 17 MR. SANDERSON: Good morning, Chairman, 18 Commissioner. I am going to change the screen here real 19 quick. 20 (Brief pause) 21 MR. SANDERSON: There we go. Today I have 22 the Calendar Year 2011 information as reported by the 23 organizations that conduct bingo in Texas. One of the 24 things I want to bring to your attention is last year, 25 2011, gross receipts exceeded $700 million, which was 14 1 the highest ever for gross receipts in one single 2 calendar year. As you can see, the pull-tabs have 3 exceeded $343 million, which is their highest, while the 4 regular bingo, which is paper and electronics, has shown 5 a decrease down to $362 million. Prizes awarded have 6 also increased to their highest level of $533 million 7 last year. And you can see electronic and regular bingo 8 prizes are $287.5 million and pull-tab prizes are 9 $246 million. 10 That leaves net receipts staying flat over 11 the last four years, from $172 million in 2008 and still 12 around $172 million in 2011. The major reason for that 13 is, the regular net receipts, which is the gross sales 14 minus prizes, continues to decrease drastically. There 15 is a significant decrease, from $88 million down to 16 $74 million. And pull-tab sales have increased their 17 net receipts from $84 million to $97.4 million. 18 This chart will show a comparison between 19 the net proceeds, which is what's left after all 20 expenses have been paid, the reported charitable 21 distributions that the organizations indicate that they 22 use for their charitable activities and the amount 23 that's required as determined by statute. 24 The distributions for 2011 were 25 $29 million; the net proceeds were 28.6 -- so they're 15 1 very close to each other -- while the required 2 distributions by statute was only 7.2 million, so 3 organizations still continue to distribute more than 4 what that required amount is. 5 With the $29 million this past year, 6 charitable bingo now has increased or exceeded one 7 billion dollars in charitable distributions since bingo 8 was legalized in 1981. 9 That concludes my report on the bingo 10 activities, and I will be glad to answer any questions. 11 CHAIRMAN WILLIAMSON: Thank you, Phil. So 12 another billion dollar industry, huh -- 13 MR. SANDERSON: Yes, ma'am. 14 CHAIRMAN WILLIAMSON: -- a landmark. 15 Commissioner, do you have any questions or 16 comments? 17 COMMISSIONER KRAUSE: Well, are any of 18 these results reflected by the fact that, you know, your 19 budget has been cut year after year after year? 20 MR. SANDERSON: Not necessarily, other 21 than the fact that the amount of charitable 22 distributions has slowly decreased a little bit over the 23 years, and I don't know if potentially more presence in 24 the audit and enforcement field would have much of an 25 impact on that. It is equal to what their net proceeds 16 1 are, so that's what the intent of the Legislature is 2 now, that they distribute their net proceeds. So 3 they're complying in that area. 4 COMMISSIONER KRAUSE: Do you have any 5 sense about whether or not market forces are motivating 6 the operators of charities to distribute more to keep 7 their customers coming in, where they're competing with 8 each other for customers? 9 MR. SANDERSON: I think the slide that 10 indicated the net receipts for regular bingo sales 11 having a dramatic decrease indicates that organizations 12 are continuing to pay out the maximum amount that's 13 allowed for regular bingo and they're not taking in as 14 much in regular bingo sales. 15 COMMISSIONER KRAUSE: And they're paying 16 out more of what they bring in? 17 MR. SANDERSON: A higher percentage of 18 what they bring in. 19 COMMISSIONER KRAUSE: Yes. 20 MR. SANDERSON: So that also leads to an 21 impact of what the bottom line is when you're -- used to 22 you're paying out 70 percent several years ago and now 23 they're paying out close to 80 percent. 24 COMMISSIONER KRAUSE: So that's not a 25 matter of enforcement; that's a matter of something 17 1 else? 2 MR. SANDERSON: It's prize board 3 management for the organizations. 4 COMMISSIONER KRAUSE: Thank you, sir. 5 CHAIRMAN WILLIAMSON: All right. Thank 6 you, Phil. 7 AGENDA ITEM NO. III 8 CHAIRMAN WILLIAMSON: Let's go on to Item 9 No. III, the report by Charitable Bingo Operations 10 Director and possible discussion and/or action on the 11 Charitable Bingo Operations Division's activities, 12 including updates on licensing, accounting and audit 13 activities, pull-tab review, special projects and 14 upcoming operator training. 15 Phil. 16 MR. SANDERSON: Commissioners, in your 17 notebook is the report on bingo activities as it relates 18 to the month of February. And other than what's in the 19 report, I have nothing else to add, unless you have a 20 question. 21 CHAIRMAN WILLIAMSON: All right. Thank 22 you. 23 Commissioner, do you have any questions or 24 comments? 25 COMMISSIONER KRAUSE: No, ma'am. 18 1 AGENDA ITEM NO. VII 2 CHAIRMAN WILLIAMSON: All right. Now, we 3 will skip over to Item VII, consideration of and 4 possible discussion and/or action, including adoption, 5 on new Rule 16 TAC 401.320 relating to All or Nothing 6 On-Line Game Rule. 7 Pete. 8 MR. WASSDORF: Good morning, Chair, 9 Commissioner. My name is Pete Wassdorf. I'm an 10 Assistant General Counsel in the Legal Services 11 Division, and I am joined today by Robert Tirloni, 12 Marketing Manager for the lottery. 13 I direct your attention to Item No. VII, 14 which is the consideration of adoption of new on-line 15 game rule entitled All or Nothing at 16 TAC 401.320. 16 The purpose of the proposed rule is to create a new 17 on-line game and to share with the public the details of 18 the game design, the matrix, the prize level, prize 19 structure, operation of the proposed game. 20 Pursuant to order of the Commission, the 21 proposed rule was published in the February 17th issue 22 of the Texas Register. The Commission established a 23 30-day written comment period from the date of 24 publication in the Register, and notice was given in the 25 Register and the agency's website. 19 1 The Commission received no written 2 comments from individuals, groups or associations during 3 the comment period. And additionally, the Commission 4 ordered a public hearing to be held on Wednesday, 5 February 29, 2112, here at the Commission headquarters, 6 and notice of that was also given in the Register and at 7 the agency's website. That hearing was held, and no 8 member of the public appeared at the hearing. The 9 proposed rule is therefore presented to you without 10 changes from the original proposal, and the staff 11 recommends adoption of the proposed new on-line game 12 rule. 13 I think Robert has some comments with 14 respect to this. 15 MR. TIRLONI: Commissioners, I just wanted 16 to bring to your attention, when we went over the new 17 on-line game proposal back in February, I told you the 18 projected start date, if you chose to adopt the rule, 19 would be early to mid-August. We have been working on 20 our timelines. And if you adopt this rule, we do need 21 to procure new drawing machines in order to launch this 22 game. 23 And so as we fine tune that game start 24 timeline, the projected start date has moved out to 25 early September. So I just wanted to let you know about 20 1 that, if you choose to adopt the rule today, that we are 2 now projecting an early September game launch, which 3 will still be very good, because we will basically have 4 sales, new sales for this game through all of Fiscal 5 Year 2013. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you. 8 Commissioner, do you have any questions? 9 COMMISSIONER KRAUSE: Yes, ma'am. 10 Our GTECH contract, is GTECH going to help 11 us administer this? 12 MR. TIRLONI: Yes, sir. 13 COMMISSIONER KRAUSE: And they're the ones 14 that are going to get the equipment or do we buy that? 15 MR. TIRLONI: The drawing equipment for 16 the studio, we have to procure. 17 COMMISSIONER KRAUSE: Oh, okay. 18 MR. TIRLONI: They'll do all of the 19 software development to design and develop the game. 20 And, of course, the sales and marketing team will help 21 us with the launch and the sale and to all the 22 retailers. 23 COMMISSIONER KRAUSE: Now, our contract 24 has got this kind of activity built into it. So as we 25 launch new games, then this is part of the deal. Right? 21 1 MR. TIRLONI: Yes, sir, that's correct. 2 COMMISSIONER KRAUSE: What kind of 3 marketing effort, focus group or whatever, do we do to 4 check out what we think might be the reception of the 5 public by these kind of games? 6 MR. TIRLONI: Well, we had done focus 7 group research with players for this game. We did two 8 of those. And then we did an Internet-based research 9 study with players. And the game was -- of the four 10 concepts that we tested, All or Nothing was the most 11 favored concept. 12 We have also been out talking to retailers 13 in our Links meetings. That's where we go and we meet 14 with retailers pretty much in a small setting. Maybe 15 there's 15 to 20 retailers in those meetings. We have 16 been sharing this game concept with them. And I will 17 tell you that it is being very, very well-received. The 18 retailers have expressed that they like the four 19 drawings per day feature of the game. They like the 20 fact that it's a new and different game. 21 I don't know if you remember. You can win 22 this game by matching all 12 numbers or you can win the 23 prize by matching zero numbers. And they think that's 24 unique and different. And, as I said, it's been very, 25 very positively received by almost everybody who has 22 1 seen the concept. 2 COMMISSIONER KRAUSE: Well, that's great. 3 Any research to indicate that it will bring in new 4 players that don't play any of our games now? And if 5 it's not readily available, don't worry about it. 6 MR. TIRLONI: Well, I was looking back, 7 because I wanted to be able to give you the number. The 8 very positive information that came out of the player 9 research had to do with lapsed players, for people who 10 have actually stopped playing. And 50 percent of lapsed 11 players indicated that they would purchase All or 12 Nothing if it were available. So that's a great 13 statistic. Any time we can introduce a game that will 14 bring people back into playing we see as a golden 15 opportunity. 16 COMMISSIONER KRAUSE: Excellent. 17 CHAIRMAN WILLIAMSON: All right. Good. 18 Thank you. 19 So I believe at this time -- 20 MR. WASSDORF: Yes. Thank you, 21 Commissioners. If it's the Commission's pleasure, 22 Ms. Kiplin, General Counsel, has an order for you. 23 COMMISSIONER KRAUSE: All right. 24 CHAIRMAN WILLIAMSON: Ready to make a 25 motion? 23 1 COMMISSIONER KRAUSE: I move that we adopt 2 new rule as proposed, the All or Nothing on-line game 3 rule, 16 TAC, Section 401.320. 4 CHAIRMAN WILLIAMSON: I second. 5 All in favor? 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 Motion passes 2-0. 9 MS. KIPLIN: Commissioners, let me present 10 the order to you. 11 AGENDA ITEM NO. VIII 12 CHAIRMAN WILLIAMSON: All right. While 13 we're doing that, let's go on to the next item. It's 14 consideration of and possible discussion and/or action, 15 including proposal, on amendments to 16 TAC 401.355 16 relating to restricted sales. 17 Pete, if you'll continue, please. 18 MR. WASSDORF: Again, good morning, 19 Commissioners. My name is Pete Wassdorf, Assistant 20 General Counsel in the Legal Services Division. 21 The Lottery Commission staff proposes to 22 amend 16 TAC 401.355, to add a new paragraph which 23 provides that retailers shall not sell tickets for a 24 game after the game's closing date. This is a 25 reinforcement and clarification of existing rules. And 24 1 it's my understanding that this was made at the 2 suggestion of the internal auditor. And the staff 3 recommends that the Commission initiate the rulemaking 4 process for consideration of that amendment. 5 CHAIRMAN WILLIAMSON: Commissioner, do you 6 have any questions? 7 COMMISSIONER KRAUSE: Has this been a 8 problem or is this just an internal audit thing? 9 MR. WASSDORF: Internal audit wanted -- 10 it's my understanding, wanted to move this provision to 11 the restricted sales area. 12 And Michael may have some comments. 13 CHAIRMAN WILLIAMSON: Okay. Michael. 14 MR. ANGER: For the record, my name is 15 Michael Anger. I'm the Lottery Operations Director. 16 Pete is exactly correct. This is really 17 just to try to further clarify for retailers and provide 18 in as many places as possible information about what 19 their responsibilities are with regard to tickets. It 20 has happened before. We have had retailers that have 21 sold tickets, you know, after a game is closed. 22 It's a situation where if a retailer 23 finds -- I mean, they shouldn't do this. But, you know, 24 if they inadvertently stashed away some tickets, stashed 25 them away in a drawer and then somebody finds them later 25 1 and doesn't realize the game is closed, they might put 2 them out and make them available for sale, and we 3 address those administratively when those situations 4 happen. 5 So this is covered in our current standard 6 penalty chart, and it's also covered in our game rules 7 where it's talked about the retailer shouldn't sell the 8 games after they have been closed, but it's not 9 specifically in the restricted sales rules. So in 10 talking with Internal Audit and in the course of their 11 review, they felt like that that would further clarify 12 to retailers, and we agreed. So by this language -- 13 CHAIRMAN WILLIAMSON: Okay. So it's just 14 putting it in enough places that, if you're researching 15 it, you can find it? 16 MR. ANGER: That's right; that's right. 17 CHAIRMAN WILLIAMSON: Okay. 18 MR. ANGER: We're just trying to make it 19 widely available. I believe it's well known but, you 20 know, it's something that, you know, we just want to 21 help the retailers as much as possible to clarify. 22 CHAIRMAN WILLIAMSON: All right. Thank 23 you. 24 Then, Commissioner, is there a motion? 25 COMMISSIONER KRAUSE: I make a motion that 26 1 we initiate the rulemaking process and post for public 2 comment proposed Rule 16 TAC, Section 401.355. 3 CHAIRMAN WILLIAMSON: I second. 4 All in favor? 5 COMMISSIONER KRAUSE: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 Motion passes 2-0. 8 Thank you. 9 MS. KIPLIN: And, Commissioners, I have a 10 T-bar memo to reflect your action today. 11 AGENDA ITEM NO. IX 12 CHAIRMAN WILLIAMSON: All right. The next 13 item is report, possible discussion and/or action on the 14 82nd Legislature. 15 Nelda is out today. 16 So, Colin, if you'll please come up. 17 MR. HAZA: Good morning, Commissioners. 18 I'm Colin Haza from the Governmental Affairs staff. We 19 have no report this month on Item IX. 20 CHAIRMAN WILLIAMSON: All right. 21 AGENDA ITEM NO. X 22 CHAIRMAN WILLIAMSON: Then we'll go on to 23 Item X which is regarding the Sunset review process 24 involving the agency. 25 MR. HAZA: Very brief report on Item X. 27 1 The Sunset staff report containing recommendations on 2 the Commission was issued on March 8th. The agency 3 provided its management response on March 13th in a 4 letter jointly signed by Gary Grief and Phil Sanderson 5 in which they stated that the agency agrees with all the 6 recommendations contained in the staff report. A copy 7 of that letter is in your briefing book behind Tab 8 No. X. We have posted both the Sunset staff report and 9 the management response on our agency's website for 10 public access. 11 The Commission, the Sunset Commission, is 12 scheduled to meet next on April 10th to hear public 13 testimony on this agency and others and to hear the 14 recommendations made by the Sunset staff. At that time 15 the agency will have the opportunity to provide 16 testimony and answer questions that the Commission 17 members may have of us. 18 The Sunset Commission is scheduled then to 19 meet again June 5th and 6th. And at this meeting, the 20 Commission will make their decisions and adopt their 21 recommendations related to this agency and others for 22 the full Legislature to consider when it convenes in 23 January of '13. 24 That concludes this report, but I'll be 25 happy to try to answer any questions you might have. 28 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 Commissioner, do you have any questions? 4 COMMISSIONER KRAUSE: No, ma'am. 5 CHAIRMAN WILLIAMSON: Thank you. 6 AGENDA ITEM NO. XI 7 CHAIRMAN WILLIAMSON: All right. Let's go 8 on to Item XI, report, possible discussion and/or action 9 on HUB and/or minority business participation, including 10 the agency's Fiscal Year 2011 Minority Business 11 Participation Report. 12 Joyce, please, if you'll share that with 13 us. 14 MS. BERTOLACINI: Good morning, 15 Commissioners. My name is Joyce Bertolacini, and I'm 16 the coordinator of the Texas Lottery Commission's 17 Historically Underutilized Business Program, and I 18 wanted to provide a brief update this morning on the 19 agency's HUB program. 20 The Comptroller of Public Accounts adopted 21 new HUB rules which became effective September 14th of 22 2011, and the agency adopted the new rules by reference, 23 as required on November 9, 2011. The rules now require 24 the agency to set its own internal HUB goals -- annual 25 HUB goals, rather -- and the agency has implemented a 29 1 goal-setting methodology and has established HUB goals 2 for Fiscal Year 2012. If you recall, you received some 3 information about this in your October packet. 4 In accordance with the rules, the agency 5 has also implemented changes to the HUB subcontracting 6 process and is using newly revised HUB subcontracting 7 plan forms for all procurements with an expected value 8 of $100,000 or more when subcontracting opportunities 9 are probable. 10 And finally, the agency is also in the 11 process of planning its annual HUB forum which will take 12 place this summer. 13 The main item that I needed to bring to 14 your attention today is our Fiscal Year 2011 Minority 15 Business Participation Report, which was included in 16 your notebooks today. This report is required by 17 Section 466.107 of the State Lottery Act, and it must be 18 made available annually to the Governor, Lieutenant 19 Governor, Speaker of the House and members of the 20 Legislature. The report requires your formal approval 21 prior to being printed and published on our website. 22 The current Minority Business 23 Participation Report documents the level of minority and 24 HUB participation in the agency's contracting activity 25 during Fiscal Year 2011. It also includes information 30 1 on the number of licensed minority lottery retailers. 2 During Fiscal Year 2011, the agency 3 achieved an overall participation rate of 26.97 percent 4 in its minority and HUB contracting activity. In 5 addition, of the 19 largest spending state agencies, the 6 TLC ranked third by overall HUB percentage. And 7 finally, during FY 2011, the agency had 7,173 minority 8 retailers, which represented 42.65 percent of the Texas 9 Lottery's total retailer base. So we have exceeded our 10 goal for minority retailers by almost twice the amount. 11 Our goal is 20 percent for that. 12 I would be happy to answer any questions 13 that you have at this time about the report or any of 14 the other HUB items. 15 CHAIRMAN WILLIAMSON: All right. Thank 16 you. 17 Commissioner, do you have any questions or 18 comment? 19 COMMISSIONER KRAUSE: Ma'am, what do you 20 personally do to advance these goals here at our agency? 21 MS. BERTOLACINI: Well, I will say that 22 the majority of the purchasing and contracting activity, 23 I am involved in some of those activities. But the 24 majority of those are done by other staff in Purchasing 25 and Contracts. Sometimes we don't have control over who 31 1 bids on those contracts. But we do get a substantial 2 amount of participation from HUBs at the subcontracting 3 level, so I'm involved in the subcontracting plan 4 process and making sure that the plans that are 5 submitted are compliant. 6 And also I do outreach, just general 7 outreach. But I have to say the purchasing staff also 8 does a lot of work in terms of trying to provide 9 opportunities to HUB vendors directly when they have 10 things they need to buy. So I guess I'm saying, don't 11 give me all the credit or all the blame. There are a 12 lot of factors that are not controllable. But in spite 13 of that, we manage to have a fairly good result with our 14 HUB numbers. 15 CHAIRMAN WILLIAMSON: All right. 16 MS. BERTOLACINI: So if you have no other 17 questions, you should have a letter there for you to 18 sign, Chairman Williamson. 19 CHAIRMAN WILLIAMSON: Right. I have that. 20 MS. BERTOLACINI: And that concludes my 21 remarks for this morning. 22 CHAIRMAN WILLIAMSON: All right. And I 23 just find it -- I mean, I'm very proud that we're there, 24 because the two above us, Texas A&M University; the two 25 below us, University of Texas, University of Houston, 32 1 Texas Tech and, No. 7, another agency, comes in similar 2 to what we do as Health and Human Services, so I think 3 that's a remarkable place for us to be. 4 MS. BERTOLACINI: Well, thank you. And 5 again, we're ranking the largest spending agencies by 6 the total dollars that are captured by the HUB report. 7 But we did move from FY '10, I believe we were at 7 in 8 the ranking, and so for 2011, we did move up. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you. 11 MS. BERTOLACINI: You're welcome. 12 CHAIRMAN WILLIAMSON: All right. We'll 13 sign this letter. 14 MS. KIPLIN: And this is an action item. 15 CHAIRMAN WILLIAMSON: This is an action 16 item. All right. 17 Commissioner, would you like to make a 18 motion, please? 19 COMMISSIONER KRAUSE: I make a motion that 20 we sign the letter. 21 MS. KIPLIN: You're approving the 2011 22 Minority Business -- 23 COMMISSIONER KRAUSE: Okay. I make a 24 motion that we approve the report. 25 MS. KIPLIN: Thank you. 33 1 CHAIRMAN WILLIAMSON: I second. 2 All in favor? 3 Aye. 4 COMMISSIONER KRAUSE: Aye. 5 CHAIRMAN WILLIAMSON: Motion passes 2-0. 6 AGENDA ITEM NO. XII 7 CHAIRMAN WILLIAMSON: Let's go on to Item 8 No. XII, consideration of and possible discussion and/or 9 action on external and internal audits and/or reviews 10 relating to the Texas Lottery Commission and on the 11 Internal Audit Department's activities. 12 Catherine is out today. So Murray, it 13 will be you in her place. 14 MR. HARVEL: Thank you. For the record, 15 I'm Murray Harvel, senior internal auditor with the 16 Internal Audit Division. I'm here on behalf of 17 Catherine Melvin who cannot be here today. 18 We have no specific items of update, but 19 I'm happy to answer any questions you may have. 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you. 22 Commissioner, do you have any questions? 23 COMMISSIONER KRAUSE: I do not. 24 MR. HARVEL: Thank you. 25 CHAIRMAN WILLIAMSON: Thank you. 34 1 AGENDA ITEM NO. XIII 2 CHAIRMAN WILLIAMSON: Let's see. We'll go 3 on to the next item. 4 COMMISSIONER KRAUSE: Gary Grief? 5 CHAIRMAN WILLIAMSON: Right. Gary is not 6 here, so I'll just take this one, is report, possible 7 discussion and/or action on GTECH Corporation. Gary is 8 not here, so I'm going to ask Mr. Lapinski to come up 9 instead and give us a report on GTECH, generally our 10 contract and specifically how y'all are dealing with 11 this uncharted territory. 12 MR. LAPINSKI: Good morning. I'm Joe 13 Lapinski, Account General Manager for GTECH in Texas. 14 Good morning Chairman, Commissioner. 15 To the events of today and what we're 16 doing with today, we've got a record jackpot. And I'm 17 proud to say that our new systems and new terminals and 18 retail equipment have all performed very well within its 19 current role for Mega Millions. In fact, the dispatch 20 to retailers for service on their equipment is down 21 35 percent from January, February, March of last year. 22 Most of that is attributable to the fact that we've 23 eliminated the older mechanical equipment like the 24 printers and replaced that with thermal technology. But 25 it's great to know that today retailers are seeing a 35 1 more reliable solution in their retail storefronts, so 2 they're selling more of the time. 3 So we haven't seen an uptick in calls from 4 retailers at our call center. Things have been running 5 very smoothly in the field. Our sales reps give us 6 regular reports of, you know, lines forming and, you 7 know, the pooling of people from jobs at their place 8 coming into retailers and buying. So we get lots of 9 good anecdotal reports of the excitement. 10 So we're looking forward to a bang-up 11 record day today and expect sales to be well north of 12 $20 million, potentially $30 million today alone. And 13 again, the systems running are CPU consumption, and 14 everything is exactly what we had expected. We don't 15 think there will be any challenges there today. 16 CHAIRMAN WILLIAMSON: All right. I 17 understand our daily sales usually is what, like 18 $3 million and now we're at -- 19 MR. LAPINSKI: Well, we're already in -- 20 CHAIRMAN WILLIAMSON: I'm going to say 21 it's going to be 30. 22 MR. LAPINSKI: We've already exceeded 23 $4 million for today, so we've already had a great draw 24 day for Mega Millions and we're not even to lunch. So 25 it's going to be a spectacular day. 36 1 CHAIRMAN WILLIAMSON: All right. 2 COMMISSIONER KRAUSE: My question is, is 3 that if you think that $20 million is what's going to 4 happen today, what do you think the capacity of the 5 system is? 6 MR. LAPINSKI: Oh, I couldn't begin to 7 guess at that. I would tell you that we just had a 8 benchmark test last week, and the transactions per 9 minute was in the hundreds of thousands, I believe. The 10 sales pace that we'll see today will probably peak at 11 around 30,000 transactions per minute. So the capacity 12 of the system to process transactions will be in the 13 magnitude of, you know, five to six times what we might 14 see today. 15 COMMISSIONER KRAUSE: Wow! Okay. 16 MR. LAPINSKI: So we've got lots of room 17 for bigger jackpots in the future. 18 COMMISSIONER KRAUSE: We can only hope. 19 CHAIRMAN WILLIAMSON: All right. Thank 20 you. 21 MR. LAPINSKI: You bet. 22 CHAIRMAN WILLIAMSON: All right. Our next 23 item (brief pause). Somebody from Rep. Bonnen was going 24 to be here. 25 Steven, are you here? I wanted to 37 1 recognize you if you were. 2 All right. Thank you. 3 AGENDA ITEM NO. XV 4 CHAIRMAN WILLIAMSON: Now we will go on to 5 status and possible entry of orders. 6 MS. KIPLIN: Commissioners, if I could 7 take Letters A through S. That's Holand Minimart 8 through the Point Stop. I would like to take these up 9 in batches if I could, just for organizational purposes. 10 Those particular documented cases are all 11 lottery revocation cases in which there were 12 insufficient funds available at the time it was swept, 13 either one time and there was no pay or four times in a 14 calendar year. And in each one of those cases, the 15 Administrative Law Judge has recommended revocation of 16 the license. These were all non-appearances defaults. 17 Staff recommends that the Commission vote 18 to adopt the Administrative Law Judges' proposed 19 findings and conclusions and revoke the licenses in each 20 one of those cases, Letters A through S. 21 CHAIRMAN WILLIAMSON: All right. Thank 22 you. 23 Commissioner, do you have any questions or 24 comments? 25 COMMISSIONER KRAUSE: No, ma'am. 38 1 CHAIRMAN WILLIAMSON: Would you make a 2 motion, please. 3 COMMISSIONER KRAUSE: I make a motion that 4 we adopt the staff recommendation for the action 5 recommended on Item No. XV, A through S. 6 CHAIRMAN WILLIAMSON: I second. 7 All in favor? 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 Motion passes 2-0. 11 MS. KIPLIN: And, Commissioners, I have an 12 order on a mass docket basis. 13 And with your permission, I would like to 14 go to Letter T. That is the matter of Jupiter Fina. 15 Commissioners, this is also a lottery revocation case. 16 The reason we're taking this up separately from the mass 17 docket is because there was an appearance by the 18 principal behind Jupiter Fina. He appeared pro se at 19 the hearing, so he had an opportunity to present his 20 case. 21 His position was that he didn't have any 22 control over the bank closing -- there was an account 23 that was closed -- in terms of the timing. He believes 24 that he did notify the Lottery Commission. He did not 25 notify the Lottery Commission timely nor in writing, 10 39 1 days before the bank closing, which caused the last 2 insufficient fund. He had others before that made the 3 four in a calendar year. 4 The Administrative Law Judge did listen to 5 the principal behind Jupiter Fina and rejected his 6 arguments, has considered them in the proposal for 7 decision but rejected his arguments and has recommended 8 revocation of the retailer's license. And the staff 9 recommends that you vote to approve the Administrative 10 Law Judge's proposed findings and conclusions and revoke 11 the license. 12 CHAIRMAN WILLIAMSON: Okay. Commissioner, 13 do you have any questions or comment? 14 COMMISSIONER KRAUSE: No, ma'am. 15 CHAIRMAN WILLIAMSON: Is there a motion, 16 please? 17 COMMISSIONER KRAUSE: My motion is to 18 approve the Administrative Law Judge's findings of fact 19 and conclusions of law and to adopt the recommendation 20 of the Administrative Law Judge in this case. 21 CHAIRMAN WILLIAMSON: I second. 22 All in favor? 23 COMMISSIONER KRAUSE: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 Motion passes 2-0. 40 1 MS. KIPLIN: And, Commissioners, I have an 2 order reflecting that action. 3 Now, if I may, I would like to take 4 Letters U and V. That is the matter of Jumping Johns 5 and Sean's Food Mart. These are consolidated for 6 purposes of consideration in an order for you, these 7 dockets. The reason for that is the principal behind 8 both of these businesses is the president of a company 9 who has a disqualifying criminal conviction. It's a 10 Class B misdemeanor theft. I believe this conviction 11 was in 2009. 12 He was represented by counsel at the 13 administrative hearing, and counsel did file exceptions. 14 The staff did reply. The Administrative Law Judge 15 has -- this is a letter saying that he is not going to 16 change his proposal for decision. He believes the law 17 is very clear in this matter. We have notified -- 18 whenever we have an appearances at a State Office of 19 Administrative Hearings, we notify that person. And my 20 understanding is, the attorney does not intend to 21 appear. 22 Staff recommends that you vote to approve 23 the Administrative Law Judge's proposed findings and 24 conclusions in both of these dockets and revoke the 25 licenses on the basis of the disqualifying criminal 41 1 conviction. 2 CHAIRMAN WILLIAMSON: All right. 3 Commissioner, do you have any questions? 4 COMMISSIONER KRAUSE: No. But the 5 Legislature has given us clear guidance on what to do 6 with this kind of thing. The thing is, is that we want 7 to run good game, fair game for our customers and for 8 the school children of Texas, and so I think this is 9 very important. 10 CHAIRMAN WILLIAMSON: All right. Do you 11 have a motion? 12 COMMISSIONER KRAUSE: I make a motion that 13 we approve the recommendations on Item No. XV, U and V. 14 CHAIRMAN WILLIAMSON: I second. 15 All in favor? 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 Months passes 2-0. 19 MS. KIPLIN: And, Commissioners, I have an 20 order reflecting that. 21 CHAIRMAN WILLIAMSON: Okay. 22 MS. KIPLIN: Would you like for me 23 to continue through the docket or would you like to -- 24 CHAIRMAN WILLIAMSON: Oh, no. We'll 25 finish the docket in a minute. 42 1 MS. KIPLIN: Okay. 2 AGENDA ITEM NO. IV 3 CHAIRMAN WILLIAMSON: Let's go on back to 4 Item No. IV. The next item is report, possible 5 discussion and/or action on lottery sales and revenue, 6 game performance, new game opportunities, advertising, 7 market research, trends, game contracts, agreements and 8 procedures. 9 Cathy and Robert. 10 MR. GRIEF: Ms. Chairman -- 11 CHAIRMAN WILLIAMSON: Executive Director, 12 would you please share with us the result of your 13 meeting. 14 MR. GRIEF: Certainly. I can tell you 15 everybody needs a new sticker. Or if you want to keep 16 your old one, all you need to do is scratch out that 17 five and make it a six. We have jumped $100 million. 18 The new jackpot is now $640 million. If there is no 19 winner -- and that's a slim chance that there won't be a 20 winner tonight. The coverage is very high -- we will 21 roll to $975 million. 22 COMMISSIONER KRAUSE: Tell us about the 23 coverage. What does that mean? Tell us what that 24 means. 25 MR. GRIEF: Out of the 176 million 43 1 different combinations that can be played, approximately 2 95 percent of them are going to likely be wagered on. 3 We won't know for sure until after the fact. But based 4 on the statisticians' work, that's what we estimate. 5 COMMISSIONER KRAUSE: And what was it 6 before today? 7 MR. GRIEF: It was about at 92, I believe. 8 COMMISSIONER KRAUSE: That's phenomenal. 9 CHAIRMAN WILLIAMSON: $640 million. You 10 heard it here first, I hope. 11 (Laughter) 12 CHAIRMAN WILLIAMSON: All right. Let's go 13 back to Item IV. Kathy and Robert, please. 14 MS. PYKA: Good morning, Commissioners. 15 My name is Kathy Pyka. I'm the Controller for the 16 Commission. And with me to my right is Robert Tirloni, 17 our Products Manager. 18 Commissioners, the first slide that we 19 have for you this morning reflects our sales for the 20 week ending March 24th of 2012. Total Fiscal Year 2012 21 sales through this 30-week period are $2.31 billion, 22 which is an increase of $133.5 million, compared with 23 the $2.18 billion figure for Fiscal Year 2011. 24 Our Fiscal Year 2012 instant ticket sales 25 reflected on the second blue bar are the $1.724 billion, 44 1 which is $105.7 million increase over the sales figure 2 for Fiscal Year 2011. And our on-line sales for this 3 period reflected on the red bar are at $590.8 million, 4 which is a $27.8 million increase over the $563 million 5 figure for last fiscal year. 6 Commissioners, our next slide reflects the 7 cumulative average daily sales for Fiscal Years 2010, 8 Fiscal Year 2011, as well as Fiscal Year 2012. As 9 reflected by total cumulative sales, our daily sales 10 average for Fiscal Year 2012 is at $11.2 million, which 11 is a 6.6 percent increase over Fiscal Year 2011 and a 12 6.1 percent increase over Fiscal Year 2010. 13 Our jackpot games highlighted with the 14 white font are at $1.74 million, which is $140.6 million 15 increase over last fiscal year and just right at the 16 $32,000 decrease as compared to Fiscal Year 2010. And, 17 Commissioners, this slide will change significantly 18 after we wrap up draw sales tonight. 19 CHAIRMAN WILLIAMSON: I figured y'all 20 would be out changing it this morning. 21 MS. PYKA: It's going to be a total 22 different picture after tonight. 23 Our daily games highlighted with the green 24 font, as you can see, our daily average there is at 25 $1.127 million for the current year, which is a slight 45 1 increase over Fiscal Year 2011 and is a 2.2 percent 2 increase over Fiscal Year 2010. 3 Of note here is our Daily 4 game. As you 4 can see, with the $175,000 daily average for this fiscal 5 year, we're 11.7 percent over last fiscal year, and 6 we're up 22 percent over Fiscal Year 2010 on this 7 particular game. 8 And then our instant ticket daily sales 9 average is at $8.36 million, which is a $551 million 10 increase over last fiscal year and is a $658,000 11 increase over Fiscal Year 2010. 12 That wraps up our average daily sales. 13 And Robert will now move on to the actual sales for this 14 fiscal year. 15 MR. TIRLONI: For the record, my name is 16 Robert Tirloni, Products Manager for the Commission. 17 And again, this is Fiscal Year '12 18 compared to Fiscal Year '11. And of special note, this 19 is only through last Saturday, the 24th. So as Kathy 20 mentioned, the deficits that you see for Mega Millions 21 through last Saturday, which were 22 and a half million, 22 that will -- 23 MS. PYKA: Have a swing of about 24 $40 million after tonight. 25 MR. TIRLONI: -- have a drastic, drastic 46 1 change when we're sitting here probably a month from 2 now. 3 COMMISSIONER KRAUSE: Well, did we have a 4 big jackpot in 2011? 5 MS. PYKA: We actually had two large 6 jackpots in 2011 that went over $300 million, which is 7 why you see the actual sales difference for this fiscal 8 year. 9 COMMISSIONER KRAUSE: Have we had another 10 big jackpot this year? 11 MS. PYKA: We have not. 12 MR. TIRLONI: On Powerball, not on Mega 13 Millions. 14 COMMISSIONER KRAUSE: Okay. 15 MR. TIRLONI: And that's the reason for 16 Powerball showing the just under $39 million surplus for 17 this year. So when you look at the surplus on 18 Powerball, and even when you take into consideration the 19 deficit we were experiencing on Mega Millions, our 20 jackpot games were up $27.4 million through last 21 Saturday. Again, that number will drastically increase. 22 The green in the middle of the chart are 23 our daily games. As Kathy mentioned a moment ago, Daily 24 4 this year is up $3.7 million compared to last year. 25 Pick 3 is down. It looks like we may have moved players 47 1 from Pick 3 to Daily 4 over time. All told in sum, the 2 daily games are up slightly, $200,000. Total for our 3 on-line game portfolio, we're seeing a surplus in Fiscal 4 Year '12 of just under $28 million. Again, you'll see a 5 substantial increase after this week is totaled up. 6 On our instant product category, we're 7 experiencing very, very strong sales. We have a lot of 8 games that are doing very well. I've given you a sample 9 of our new $10.00 Spectacular game. It started at the 10 end of February. It's been out for just about a month. 11 And that is $200 Million Cash Spectacular. And I told 12 you back in February that this is our first $10 13 spotlight game. Our first $10 mega-game. And that is 14 certainly helping contribute to the $105 million surplus 15 we're realizing this fiscal year in instant ticket 16 sales. 17 And so all told, combined, as of last 18 Saturday the 24th, our total sales were up just under 19 $134 million this fiscal compared to last fiscal. And 20 the great news about the very large jackpot that we're 21 experiencing right now is not only is it great for Mega 22 Millions and the Mega Millions sales, but what typically 23 happens is, the sales on all of our products go up just 24 because of the huge number of people that are going into 25 the stores and seeing our product. So it is good 48 1 because it helps with the trial of other products that 2 may not get as much play throughout the year. So it's 3 good news all around. 4 CHAIRMAN WILLIAMSON: I was going to ask 5 you if you've seen an uptick on the sales of our other 6 products? 7 MR. TIRLONI: We are; we are. We were 8 looking at our Lotto sales this morning, because we also 9 have to do our Lotto jackpot estimate for tomorrow 10 night. And our sales yesterday for Lotto were 11 substantially higher than we would normally see on a 12 Thursday. So as people are going in, like I said, they 13 are sampling and trying a little bit of everything while 14 they're in the store, which is great news for us. 15 CHAIRMAN WILLIAMSON: That's wonderful. 16 Great! Thank you. 17 MR. TIRLONI: That concludes our report, 18 unless you have anything else you would like to add. 19 CHAIRMAN WILLIAMSON: Commissioner, do you 20 have any questions? 21 COMMISSIONER KRAUSE: (Nods head) 22 AGENDA ITEM NO. V 23 CHAIRMAN WILLIAMSON: The next item is 24 report, possible discussion and/or action on transfers 25 to the State and agency's budget status. 49 1 Kathy. 2 MS. PYKA: Again, for the record, my name 3 is Kathy Pyka, Controller for the Commission. 4 Commissioners, the first report in your 5 notebook includes the allocations to the Foundation 6 School Fund, the Texas Veterans Commission, and the 7 allocation of unclaimed prizes for the period ending 8 February 29, 2012. 9 Our total cash transfers to the state 10 amounted to $520.6 million through the six months of the 11 fiscal year. And as we look at that $520.6 million 12 transfer to the state, $493.4 million was the amount 13 transferred to the Foundation School Fund, with 14 $2.6 million transferred to the Texas Veterans 15 Commission. We also transferred $24.6 million from 16 unclaimed lottery prizes. 17 Commissioners, this represents an 18 11.2 percent increase, or $49.8 million, over the amount 19 that we transferred to the Foundation School Fund in 20 Fiscal Year 2011. 21 Included in your notebook is also a report 22 of the cumulative transfers to the Foundation School 23 Fund which are now at $14.1 billion. Then the final 24 item under this tab includes our Fiscal Year 2012 25 method-of-finance budget summary for both the lottery 50 1 dedicated account and the general revenue account which 2 supports our bingo activities. 3 The lottery dedicated account budget for 4 2012 is $189.3 million. And of that amount, we have 5 expended and encumbered 69.8 percent through the end of 6 the first quarter. In our bingo budget funded by 7 general revenue of $14.69 million, with 35.1 percent 8 expended and encumbered through the end of the first 9 quarter. 10 Commissioners, this concludes my 11 presentation. I would be happy to answer any questions. 12 CHAIRMAN WILLIAMSON: Thank you. 13 Commissioner, do you have any questions? 14 COMMISSIONER KRAUSE: No, ma'am. 15 MS. PYKA: Thank you, Commissioners. 16 AGENDA ITEM NO. VI 17 CHAIRMAN WILLIAMSON: And, Kathy, if you 18 will go on to Item VI, is consideration of and possible 19 discussion and/or action on the agency's Strategic Plan 20 for Fiscal Years 2013 through 2017. 21 MS. PYKA: Commissioners, this morning I'm 22 seeking your approval to modify the Commission's 23 strategic budget structure for Fiscal Years 2014 and 24 '15. And just as a basis for going through the 25 background, it's the basis for developing our overall 51 1 legislative appropriation request that we'll be 2 submitting at the end of this summer to the Legislative 3 Budget Board and the Governor's office. 4 So included in your notebook is a request 5 that we reduce our budget structure and bingo strategies 6 from five strategies to two strategies. And what's 7 included there is one change to move the activities of 8 their bingo prize fee allocation strategy to their rider 9 strategy or their rider appropriation. And this 10 recommendation is consistent with Recommendation 4.1 11 that was included in the Sunset report. 12 And we also are asking that we consolidate 13 two other bingo strategies into the larger bingo 14 licensing strategy. And then the balance of the items 15 in your notebook include revisions to 22 of our 60 16 performance measures. They're all simply updates, 17 updating the financial system names, the gaming system 18 names, so forth and so on, so they're pretty minor in 19 nature. 20 So with that, Commissioners, I'm seeking 21 your approval to submit those changes to the Legislative 22 Budget Board and the Governor's Office of Budget and 23 Planning. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 52 1 Commissioner, do you have any question? 2 COMMISSIONER KRAUSE: Can you explain 3 really quickly the effect that this is going to have on 4 the Bingo Division and why it's important? 5 MS. PYKA: I certainly can. The bingo 6 prize fee strategy has historically been funded as part 7 of their method of finance. And so any time we have 8 looked at across-the-board budget reduction, that budget 9 reduction is taking into account the dollar value of 10 that pass-through strategy, which is about $25 million 11 in total but 12 and a half million of what is expended 12 as part of the budget. 13 That is not an operational expense of this 14 agency. It's a pass-through item where we're actually 15 collecting the allocation of those funds and passing it 16 back through to the local jurisdictions. So it should 17 not be part of his administrative budget structure. And 18 so we're looking to take corrective action on that to 19 ensure that there is not any confusion on that in the 20 future with regard to any potential budget structure 21 changes or budget funding changes we might have in the 22 future. 23 COMMISSIONER KRAUSE: So in lottery terms, 24 that's a mega-multiplier on the budget cut to his 25 budget? 53 1 MS. PYKA: You bet. 2 COMMISSIONER KRAUSE: All right. 3 MS. PYKA: It is a significant 4 mega-multiplier to his overall budget reductions. 5 CHAIRMAN WILLIAMSON: And I think it's an 6 excellent idea that we're doing that. 7 MS. PYKA: I agree. 8 CHAIRMAN WILLIAMSON: Any other questions? 9 COMMISSIONER KRAUSE: No. I make a motion 10 that we adopt the changes to the strategic plan. 11 CHAIRMAN WILLIAMSON: I second. 12 All in favor? 13 COMMISSIONER KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 Motion passes 2-0. 16 MS. PYKA: Thank you, Commissioners. 17 CHAIRMAN WILLIAMSON: Thank you. 18 And at this time Mr. Schar from 19 Rep. Bonnen's office -- you have to stand up so we can 20 all see you. Welcome to our meeting and please come 21 whenever you want. And please share with the 22 representative that we would certainly like for him to 23 come and participate at any time. He gets to set up 24 over here, too, and ask any questions he wants. So 25 we're glad to have you here. 54 1 MR. SCHAR: Thank you. 2 AGENDA ITEM NO. XV (CONTINUED) 3 CHAIRMAN WILLIAMSON: All right. Let's go 4 on. Let's go back to our action items and finish that 5 up, Kim. 6 MS. KIPLIN: Commissioners, if we will go 7 back to Item XV. And now I would like to, with your 8 permission, take up Letter W, which is the matter of 9 Thomas Taylor. Commissioners, at an earlier Commission 10 meeting, you heard the staff and also the attorney for 11 Mr. Taylor, and it had to do with a case that was over 12 at the State Office of Administrative Hearings and 13 removal of Mr. Taylor from the Bingo Registry of Workers 14 and had to do with the disqualifying criminal 15 conviction. 16 At that time your action was to remand the 17 matter back to the State Office of Administrative 18 Hearings. In particular, it had to do with a change in 19 the law regarding what would be a disqualifying criminal 20 conviction for purposes of removal from the Registry of 21 Bingo Workers. 22 So the case was remanded, and it was 23 reopened and there was further evidence and argument at 24 that time. In response to that, the Administrative Law 25 Judge has issued a new proposal for decision, and his 55 1 recommendation is not to remove Mr. Taylor from the 2 Registry of Bingo Workers, for the reason that there has 3 been a change in law and does not believe that under the 4 new law, that Mr. Taylor would be ineligible. 5 And the staff does not oppose that, did 6 not file exceptions and at this time does recommend that 7 you do vote to adopt the Administrative Law Judge's 8 findings and conclusions in that case, in the order 9 which is to not remove Mr. Taylor from the registry. 10 CHAIRMAN WILLIAMSON: Commissioner, any 11 questions? 12 COMMISSIONER KRAUSE: I'm pleased to make 13 a motion to adopt the Finding of Fact and Conclusions of 14 Law made by the Administrative Law Judge and that we 15 adopt the order proposed by the Administrative Law 16 Judge. 17 CHAIRMAN WILLIAMSON: I second. 18 All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Motion passes 2-0. 22 Thank you. 23 MS. KIPLIN: I have an order reflecting 24 your vote. And I should have mentioned that 25 Mr. Fenoglio is here and available had you had any 56 1 questions on behalf of Mr. Taylor. 2 With that, I would like to go to Letter X, 3 Elks Lodge 0201. Commissioners, this is a settlement 4 agreement and proposed order, and it had to do with an 5 unlicensed bingo occasion conducted by the respondent. 6 The staff and the respondent have entered into an 7 agreement, which is reflected in the proposed order 8 imposing a fine of $250 and notifying the division of 9 any changes in any of its application information on a 10 go-forward basis; in other words, take corrective action 11 so that this doesn't occur again. Staff recommends that 12 you do vote to approve the order. 13 CHAIRMAN WILLIAMSON: Commissioner, do you 14 have any questions? 15 COMMISSIONER KRAUSE: Other than on 16 something that small, do we need to act on it? 17 CHAIRMAN WILLIAMSON: Yes. Please make a 18 motion. 19 COMMISSIONER KRAUSE: All right. I move 20 that we adopt the recommendation. 21 CHAIRMAN WILLIAMSON: I second. 22 All in favor? 23 COMMISSIONER KRAUSE: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 Motion passes 2-0. 57 1 MS. KIPLIN: I have an order reflecting 2 that. 3 And if I can go to Letter Y, Shady Oaks 4 Bingo Unit. This is a recommendation imposing a penalty 5 of $29,175. This was a unit that was made up of several 6 organizations. Mr. Sanderson is here and can lay out 7 more substantive information. But in summary, the unit 8 failed to essentially maintain records, proper records. 9 During an audit, this was discovered and failed to 10 maintain a perpetual inventory of disposable paper. A 11 lot of it had to do with recordkeeping and the failure 12 to maintain proper documentations. 13 So the staff does recommend you enter into 14 the proposed order imposing this penalty. 15 CHAIRMAN WILLIAMSON: Thank you. So this 16 is -- that was a result of one of our audits that we 17 performed. Was it one of our financial audits, I 18 assume? 19 MR. SANDERSON: This was a financial audit 20 that the Audit section did. And the records were either 21 non-existent or in very, very poor shape. We had a 22 difficult time in determining if the quarterly reports 23 were accurate or even close to being accurate. And so 24 it's a substantial penalty for them not maintaining that 25 documentation. They have since corrected all these 58 1 errors. And the last inspection or follow-up that we 2 had indicated that they were maintaining these documents 3 now. 4 CHAIRMAN WILLIAMSON: Were they chosen on 5 a random basis or was there a specific reason why you 6 looked at them? I mean, was there something that was 7 reported or you just were not comfortable with what you 8 were seeing that they were providing? 9 MR. SANDERSON: This audit is fairly old. 10 And I believe it was from a complaint that we had 11 received potentially of someone not reporting everything 12 correctly. 13 CHAIRMAN WILLIAMSON: All right. 14 Commissioner, do you have any questions or comments? 15 COMMISSIONER KRAUSE: No, ma'am. I make a 16 motion that we approve the proposed order. 17 CHAIRMAN WILLIAMSON: I second. 18 All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Motion passes. 22 MS. KIPLIN: And I have an order to 23 reflect that. 24 Commissioners, Letter Z, American Legion 25 Post 808 Booker T. Washington. It's also the result of 59 1 an audit. The respondent and the staff have agreed to 2 an administrative penalty in the amount of $3,285 for 3 violations of the Charitable Bingo Act. This had to do 4 with proper recordkeeping, failure to maintain records. 5 And with that, the staff would recommend 6 that you enter into the order. Mr. Sanderson is here if 7 you would like more substantive information. 8 CHAIRMAN WILLIAMSON: All right. 9 Commissioner, do you have any questions? 10 COMMISSIONER KRAUSE: I make a motion that 11 we approve the order. 12 CHAIRMAN WILLIAMSON: I second. 13 All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 Motion passes 2-0. 17 MS. KIPLIN: And, Commissioners, that 18 leaves the remaining item, AA, Matter of American Legion 19 Post 808 auxiliary. This is also a proposed settlement 20 agreement and agreed order. Staff and the respondent 21 have agreed to an administrative penalty in the amount 22 of $4,228, as a result of an audit, and reports the 23 audit findings were the same in terms of inaccurate 24 recordkeeping, failure to maintain proper documentation. 25 Staff recommends you vote to enter and 60 1 approve the order. 2 CHAIRMAN WILLIAMSON: Okay. Phil, refresh 3 my memory. On these penalties and fines, where does 4 that money go? 5 MR. SANDERSON: It goes in the general 6 revenue. 7 CHAIRMAN WILLIAMSON: So it doesn't 8 necessarily come back to -- 9 MR. SANDERSON: It's not reappropriated 10 back to the division, no. 11 CHAIRMAN WILLIAMSON: Okay. Commissioner, 12 do you have any questions or -- 13 COMMISSIONER KRAUSE: No, ma'am. 14 CHAIRMAN WILLIAMSON: You will make a 15 motion? 16 COMMISSIONER KRAUSE: I make a motion that 17 we adopt this order. 18 CHAIRMAN WILLIAMSON: I second. 19 All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 Motion passes 2-0. 23 MS. KIPLIN: All right. I have an order 24 reflecting that. 25 And that concludes the docket. 61 1 AGENDA ITEM NO. XVI 2 CHAIRMAN WILLIAMSON: All right. There is 3 no public comment at this time. 4 AGENDA ITEM NO. XVII 5 CHAIRMAN WILLIAMSON: So at this time I 6 move the Texas Lottery Commission go into executive 7 session to deliberate the duties and evaluation of the 8 Executive Director, Internal Audit Director and 9 Charitable Bingo Operations Director and to deliberate 10 the duties of the General Counsel and Human Resources 11 Director pursuant to Section 551.074 and to receive 12 legal advice regarding any pending or contemplated 13 litigation pursuant to Section 551.071(1)(A) and 14 551.071(1)(B) of the Texas Government Code and to 15 receive legal advice pursuant to Section 551.071(1)(2) 16 of the Texas Government Code, including but not limited 17 to those items posted on the open meetings notice, for 18 purposes of receiving legal advice. 19 Is there a second? 20 COMMISSIONER KRAUSE: Second. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 Motion passes 2-0. 25 The Lottery Commission will go into 62 1 executive session. The time is 11:10, and today is 2 March 30th at 2012. And we'll take a 10-minute break 3 before we go into executive session. 4 (Recessed for executive session: 5 11:10 a.m. to 11:35 a.m.) 6 AGENDA ITEM NO. XVIII 7 CHAIRMAN WILLIAMSON: The Texas Lottery 8 Commission is out of executive session. The time is 9 11:35 a.m. There is no action to be taken as a result 10 of the executive session. 11 AGENDA ITEM NO. XIX 12 CHAIRMAN WILLIAMSON: So is there a motion 13 to adjourn? 14 COMMISSIONER KRAUSE: I move we adjourn. 15 CHAIRMAN WILLIAMSON: I second. 16 All in favor? 17 COMMISSIONER KRAUSE: Aye. 18 CHAIRMAN WILLIAMSON: Aye. 19 Motion passes 2-0. 20 (Meeting adjourned: 11:35 a.m.) 21 22 23 24 25 63 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 10th day of April 2012. 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