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, MAY 4, 2012 § 9 10 11 COMMISSION MEETING 12 FRIDAY, MAY 4, 2012 13 14 15 BE IT REMEMBERED THAT on Friday, the 16 4th day of May 2012, the Texas Lottery Commission 17 meeting was held from 10:04 a.m. until 11:42 a.m., at 18 the Offices of the Texas Lottery Commission, 611 East 19 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 20 ANN WILLIAMSON, COMMISSIONER CYNTHIA TAUSS DELGADO and 21 COMMISSIONER J. WINSTON KRAUSE. The following 22 proceedings were reported via machine 23 shorthand by Lou Ray, a Certified Shorthand 24 Reporter. 25 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONER: Mr. J. Winston Krause 5 COMMISSIONER: 6 Ms. Cynthia Tauss Delgado 7 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 8 EXECUTIVE DIRECTOR: 9 Mr. Gary Grief 10 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip D. Sanderson 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, MAY 4, 2012 .................. 7 4 AGENDA ITEM NO. I - Meeting Called to Order ........ 7 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on a report relating 6 to charitable bingo as contemplated by Texas Occupations Code Section 2001.060 and/or calendar 7 year 2011 bingo report ............................. 7 8 AGENDA ITEM NO. III - Report by the Charitable Bingo Operations Director and possible 9 discussion and/or action on the Charitable Bingo Operations Division’s activities, 10 including updates on licensing, accounting and audit activities, pull-tab review, special 11 projects, and upcoming operator training ........... 10 12 AGENDA ITEM NO. IV - Report, possible discussion and/or action on lottery sales 13 and revenue, game performance, new game opportunities, advertising, market research, 14 trends, and game contracts, agreements, and procedures ..................................... 11 15 AGENDA ITEM NO. V - Report, possible discussion 16 and/or action on transfers to the State and agency’s budget status ............................. 21 17 AGENDA ITEM NO. VI - Consideration of and 18 possible discussion and/or action on the agency's Strategic Plan for FY 2013-2017 ........... 22 19 AGENDA ITEM NO. VII - Report, possible 20 discussion and/or action on agency social media ....................................... 23 21 AGENDA ITEM NO. VIII - Report, possible 22 discussion and/or action on the 82nd Legislature ........................................ 26 23 24 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. IX - Report, possible discussion and/or action on the Sunset review process 4 involving the agency ............................... 27 5 AGENDA ITEM NO. X - Report, possible discussion and/or action on agency contracts, including 6 amendments or extensions on the drawing audit services, drawing studio and production services, 7 statistical consulting services, and surveillance camera products and related services 8 contracts .......................................... 28 9 AGENDA ITEM NO. XI - Consideration of and possible discussion and/or action on external 10 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 11 Internal Audit Department’s activities ............. 29 12 AGENDA ITEM NO. XII - Report, possible discussion and/or action on GTECH Corporation ...... 30 13 AGENDA ITEM NO. XIII - Report by the Executive 14 Director and/or possible discussion and/or action on the agency’s operational status, 15 agency procedures, awards, and FTE status .......... 31 16 AGENDA ITEM NO. XIV - Consideration of the status and possible entry of orders in: ............ 31 17 A. Docket No. 362-12-4217 - Oak Grove Food Mart 18 B. Docket No. 362-12-4218 - Uvalde Market C. Docket No. 362-12-4225 - D&R Shop 19 D. Docket No. 362-12-4025 - Palo Alto Supermarket 20 E. Docket No. 362-12-3682 - Jeanie's Corner Inc. 21 F. Docket No. 362-12-3683 - SNS Food Mart G. Docket No. 362-12-3684 - Alex Discount Mart 22 H. Docket No. 362-12-3685 - My Smokes I. Docket No. 362-12-2849 - Check N Go 23 J. Docket No. 362-12-0896.B - William T. Smith K. Docket No. 362-12-0891.B - Northeast 24 Texas Casa, Inc. 25 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XIV (continued) 4 L. Docket No. 362-12-0885.B - Texarkana Historical Society & Museum 5 M. Docket No. 362-12-0886.B - Runnin WJ Therapeutic Center, Inc. 6 N. Docket No. 362-12-0887.B - Alzheimers Alliance Texarkana Area, Inc. 7 O. Docket No. 362-12-0888.B - Amvets Post 81 P. Docket No. 362-12-0889.B - Harvest 8 Texarkana Q. Docket No. 362-12-0890.B - Knights of 9 Columbus 1003 R. Docket No. 362-12-0893.B - Senior 10 Citizens of Texas Texarkana, Inc. S. Docket No. 362-12-0894.B - Texarkana 11 Sheltered Workshop, Inc. T. Docket No. 362-12-0892.B - Super Bingo 12 U. Docket No. 362-12-0895.B - Super Bingo Too 13 AGENDA ITEM NO. XV - Public Comment ................ 31 14 AGENDA ITEM NO. XVI - Commission may meet in Executive Session: .............................. 37 15 A. To deliberate the duties and evaluation of the Executive Director pursuant to 16 Section 551.074 of the Texas Government Code. 17 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 18 to Section 551.074 of the Texas Government Code. 19 C. To deliberate the duties and evaluation of the Charitable Bingo Operations 20 Director pursuant to Section 551.074 of the Texas Government Code. 21 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 22 the Texas Government Code. E. To deliberate the duties of the Human 23 Resources Director pursuant to Section 551.074 of the Texas Government Code. 24 25 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XVI (continued) 4 F. To receive legal advice regarding pending or contemplated litigation pursuant to 5 Section 551.071(1)(A) and/or to receive legal advice regarding settlement offers 6 pursuant to Section 551.071(2) of the Texas Government Code, including but not 7 limited to: Department of Texas, Veterans of Foreign 8 Wars et al. v. Texas Lottery Commission et al, Willis Willis v. Texas Lottery 9 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food 10 Store #2, Barkat N. Jiwani and Pankai Joshi 11 Employment law, personnel law, procurement and contract law, evidentiary 12 and procedural law, and general government law G. 13 AGENDA ITEM NO. XVII - Return to open session 14 for further deliberation and possible action on any matter discussed in Executive Session ....... 38 15 AGENDA ITEM NO. XVII - Adjournment ................. 38 16 REPORTER'S CERTIFICATE ............................. 40 17 18 19 20 21 22 23 24 25 7 1 P R O C E E D I N G S 2 FRIDAY, MAY 4, 2012 3 (10:04 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call this meeting of the Texas Lottery 7 Commission to order. Today is May the 4th, 2012. The 8 time is 10:04. Commissioners Krause and Delgado are 9 present, so we have a quorum. And we missed you last 10 session, so we're glad you're back. 11 COMM. DELGADO: Thank you. 12 AGENDA ITEM NO. II 13 CHAIRMAN WILLIAMSON: The next item is 14 consideration of and possible discussion and/or action 15 on a report relating to charitable bingo as contemplated 16 by the Texas Occupations Code, Section 2001.060 and/or 17 calendar year 2011 bingo. 18 Phil, this is your item, please. 19 MR. SANDERSON: Good morning, 20 Commissioners. In your notebook is the report that's 21 required by statute that we provide to the Legislature 22 on -- by June the 1st of each even-numbered year. It 23 covers the two previous calendar years. It outlines a 24 requirement to report what the adjusted gross receipts 25 by charitable bingo organizations have reported, along 8 1 with their net proceeds, what percentage of the net 2 proceeds is that relates to the adjusted gross receipts, 3 other expenses and also some calculations on the rent 4 income by lessors and conductors, and the calculation of 5 how much rent may be reported twice as it relates to a 6 conductor/lessor tier structure. 7 So in your notebook is that information. 8 And once action is taken and it's approved, then we'll 9 provide a memo to the members of the Legislature that 10 it's required to go to. And I'll work with Nelda 11 Trevino as we prepare to get that submitted prior to 12 June 1st. 13 With that, I'll answer any questions. 14 CHAIRMAN WILLIAMSON: Thank you. 15 Commissioners, do you have any questions? 16 COMM. DELGADO: No. 17 COMM. KRAUSE: No, ma'am. 18 CHAIRMAN WILLIAMSON: You know, just real 19 briefly for those of us that are not up to speed on 20 this, exactly -- when you say that it's reported twice, 21 can you briefly give us an explanation of how that 22 occurs? 23 MR. SANDERSON: In the leasing structure 24 where there is a top-tier lessor, a mid-tier conductor 25 that also holds a lessor license to lease to other 9 1 organizations, the top-tier lessor can collect rent from 2 the conductor lessor in two ways: One for the occasions 3 that the organization conducts bingo, and then, two, for 4 the occasions that the conductor organization acts as a 5 lessor to the remaining organizations there. 6 So potentially rent that is paid to the 7 conductor lessor that they have to report as rental 8 income and pay a 3 percent sales tax then could be a 9 portion of that passed through their bingo account to 10 pay the top tier lessor for the rent income that they 11 report as being received and pay a 3 percent tax. So 12 there could be a portion of that, and that's what the 13 last calculation in the table indicates is approximately 14 $1.4 million of the rental income that's reported to the 15 state is contained in two categories. The conductor 16 lessor reports it as rental income along with the 17 top-tier lessor. 18 CHAIRMAN WILLIAMSON: So they potentially 19 are paying it twice? 20 MR. SANDERSON: The gross receipts tax is 21 potentially paid twice on that 3 percent of that, yes. 22 CHAIRMAN WILLIAMSON: Okay. Thank you. 23 This is an action item. Is there a motion to -- 24 COMM. DELGADO: I move to approve this 25 report as it relates to charitable bingo -- this is my 10 1 first one, you know -- as requested by the Texas 2 Occupational Code 2001.060p. 3 COMM. KRAUSE: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 (All those voting in favor so responded) 6 The motion passes. 7 MR. SANDERSON: Thank you, Commissioners. 8 CHAIRMAN WILLIAMSON: Way to go. 9 COMM. DELGADO: Thank you. 10 AGENDA ITEM NO. III 11 CHAIRMAN WILLIAMSON: The next item is a 12 report by the Charitable Bingo Operations Director and 13 possible discussion and/or action on the Charitable 14 Bingo Operations Division's activities, including 15 updates on licensing and accounting and audit 16 activities, pull tab reviews, special projects and 17 operator training. 18 Phil? 19 MR. SANDERSON: Commissioners, in your 20 notebook is the March report for bingo activities in the 21 Bingo Division. I emailed you the April report earlier 22 this week and provided you a hard copy either yesterday 23 or this morning for your review. And other than what's 24 in the report, I have nothing further to add. I'll be 25 glad to answer any questions. 11 1 CHAIRMAN WILLIAMSON: All right. 2 Commissioners, do you have questions of Phil on his 3 report. 4 COMM. DELGADO: No, ma'am. 5 COMM. KRAUSE: No, ma'am. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you, Phil. 8 MR. SANDERSON: Thank you. 9 AGENDA ITEM NO. IV 10 CHAIRMAN WILLIAMSON: The 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, 14 game contract agreements and procedures. 15 Kathy and Robert, please? 16 MS. PYKA: Good morning, Commissioners. 17 My name is Kathy Pyka. I'm the controller for the 18 Commission. To my right is Robert Tirloni, who is our 19 products manager. 20 MR. TIRLONI: Good morning, Commissioners. 21 For the record, I'm Robert Tirloni, Products Manager for 22 the Commission. I'm going to start out this morning 23 before Kathy begins with the sales comparison. I wanted 24 to let you know that in today's presentation you're 25 going to hear a change in terminology. Starting today, 12 1 we're going to be referring to our on-line games or our 2 on-line products as draw games. 3 The term on-line is a lottery industry 4 term that's been in existence for many years. And it 5 was used because the sales terminal in retail locations 6 was said to be on-line with the lottery operators' 7 central gaming system. With the expansion and 8 proliferation of the Internet, when the phrase on-line 9 is used now, people believe that it has something to do 10 with the Internet. 11 So we believe that distinguishing our 12 games as draw games will avoid any possible confusion 13 with our games either being conducted or drawn or 14 available to the public via the Internet. So we're 15 going to start using that phrase today, and we're 16 formalizing this in the version of the strategic plan 17 for the agency that is currently being drafted at this 18 time. 19 CHAIRMAN WILLIAMSON: Okay. Is this 20 industry-wide or just us? 21 MR. TIRLONI: Using draw games? 22 CHAIRMAN WILLIAMSON: I mean changing the 23 name? 24 MR. TIRLONI: I think there's a mix. I 25 think there are some jurisdictions that still use 13 1 on-line, but I have seen other states that refer to them 2 as draw games or drawing games. So I think there's 3 probably still a mix of both variations out there. 4 CHAIRMAN WILLIAMSON: Okay. Thank you. 5 MS. PYKA: Commissioners, our first chart 6 for you this morning includes our comparative sales data 7 through the week ending April 28th, 2012. Our totals 8 fiscal year 2012 sales through this 35th -- 35-week 9 period, are $2.8 billion, which is an increase of $236 10 million over the same period last fiscal year. Our 11 fiscal year 2012 instant ticket sales reflected on the 12 second blue bar are at $2.045 billion, which is $133.5 13 million increase over the sales figures for fiscal year 14 2011. 15 And our fiscal year 2012 draw sales are 16 reflected on the second red bar, are at $756.8 million. 17 This is a $102.4 million increase over the same time 18 period last fiscal year. 19 Commissioners, our next slide includes 20 cumulative average daily sales comparison, comparing 21 ourselves from fiscal year 2010 to fiscal year 2011, as 22 well as fiscal year 2012. The average daily sales 23 amount for fiscal year 2012 $11.6 million. This is a 24 $1 million increase over last fiscal year. 25 Our fiscal year 2012 sales also includes a 14 1 $965,000 increase, or just over 9 percent over the $10.6 2 million average for fiscal year 2010. 3 Our jackpot games, which are highlighted 4 with the white font, reflect just over $2 million as a 5 daily average, which is a $423,000 increase over last 6 fiscal year, and $173,000 increase over fiscal year 7 2010. And as is noted on this slide, all of our jackpot 8 games for fiscal year 2012 were reporting an increase 9 over our prior year sales. 10 A special note, we'd like to focus on the 11 multistate draw games, with Mega Millions, after our 12 $605 million jackpot, we're now seeing a 28 percent 13 increase over prior fiscal year sales. And Powerball is 14 reflecting a 72 percent increase over fiscal year 2011 15 following the introduction of the $2 price point. 16 Our daily games are reflected with the 17 green font, are at $1.1 million for the current year. 18 This is a slight increase over last fiscal year of just 19 over a percent, and a 2.8 percent increase over fiscal 20 year 2010. We'd like to highlight within this grouping 21 our Daily Four sales, which are at $179,000. That's an 22 increase of 12 percent over last fiscal year, and 23 23 percent over fiscal year 2010. 24 And last, our instant ticket sales at the 25 bottom of the chart are at $8.49 million, an increase of 15 1 587,000 over last fiscal year, 761,000 over fiscal year 2 2010. 3 So with that, Robert will now provide an 4 overview of actual sales for 2012 compared to fiscal 5 year 2011. 6 MR. TIRLONI: So this next slide is 7 through the week ending Saturday, April 28th. It's the 8 same layout as the previous slide. Our jackpot games 9 are at the top in white. You'll notice a significant 10 change in sales in fiscal '12 compared to '11 for Mega 11 Millions and Powerball. As Kathy just mentioned, we've 12 had very healthy jackpots from both of those games, and 13 the introduction of $2 Powerball was very successful. 14 That is contributing to a $100 million increase in the 15 Jackpot Games year-over-year. 16 And then the Daily Games are in the middle 17 of the slide in green. Almost everything is showing an 18 increase except for Pick 3, which is down slightly $3.2 19 million decline. But overall that product group of the 20 Daily Games is up almost $2 million in fiscal '12 21 compared to fiscal '11. Summing that -- all those games 22 up, the Jackpot Games and the Daily Games, we have a 23 Draw Games total surplus of $102 million this fiscal 24 compared to last. 25 Our instant product category continues to 16 1 do very well this fiscal year. Sales in our instant 2 product category are up just under $134 million. And so 3 overall, amongst the entire product category, instant 4 and draw games, we're seeing a $236 million sales 5 increase. 6 Commissioners, we bring you this slide 7 about once a quarter. Again this is also through the 8 week ending Saturday, April 28th. This represents our 9 instant sales. So just -- representing just over $2 10 billion in instant sales, and it is broken out by price 11 point, $5 continues to be our number one selling price 12 point, followed by the 10, the 2 and then the $20 price 13 point. As I mentioned, we are seeing very strong -- 14 very strong instant sales this year. 15 I've got just a couple of product 16 marketing updates for you. You should have a sample of 17 our 20th anniversary game in front of you. We are 18 celebrating our 20th anniversary at the end of this 19 month. This game starts in a couple of weeks, on 20 Monday, May 28th. It's a pretty smart looking ticket. 21 There's a special application of holographic material on 22 the front of that ticket, so it blooms and shines, and 23 it's a really good looking ticket. And some of the 24 other instant ticket dispensers have that same 25 holographic material on them. So it's a very cool 17 1 looking ticket, and we're going to support this on all 2 of our in-store advertising displays (inaudible) and 3 Gary has something else to add about the 20th 4 anniversary. 5 MR. GRIEF: Commissioners, as Robert 6 stated this month, May 29th to be exact, we'll be 7 observing the 20th anniversary of Texas Lottery. On 8 that day back in 1992 we began with one instant scratch 9 off game, and the very first ticket was bought by then 10 Governor Ann Richards. Since then we've $64 billion in 11 lottery (inaudible) with net revenues now to the state 12 of about $20 billion. Of that 20 billion, more than 14 13 billion has gone directly to the Foundation School fund, 14 and (inaudible) more than $36 billion in prizes to 15 players. And we've paid our valuable retailers more 16 than $3 billion in bonuses and commissions. 17 In recognition of this incredibly 18 important milestone, we're going to have a celebratory 19 staff program on that day, May 29th, in which we hope to 20 have some very special guests from the Lottery's past 21 come and join us for that celebration. And that 22 concludes my report on that. 23 Robert? 24 MR. TIRLONI: I have another update for 25 you on our $200 million cash spectacular game. This is 18 1 our $10 spotlight game. The first $10 spotlight game 2 we've ever launched, we started back in February, and 3 then we launched all of our marketing and advertising 4 supports about three-and-a-half weeks later in March. 5 This is our number one selling game. It's doing very 6 well. 7 I wanted to show you some of the points of 8 sale that we have used to support this game. The point 9 of sale was designed based off of the theme of the 10 television commercial, and the television commercial has 11 a very like Broadway musical spectacular type theme to 12 it. And so that's kind of where the (inaudible) look 13 and feel came from. 14 So I wanted you to see that, but I also 15 wanted to let you know we've been honored with a Flurry 16 Award for our TV spot. And we received that award a 17 couple of weeks ago at the La Fleur's conference which 18 took place in Washington, D.C. I have the TV spot to 19 show you, but Gary was at La Fleur's and received that 20 reward. So they wanted to give you more information 21 about that. 22 MR. GRIEF: Thank you again, Robert. 23 MR. TIRLONI: You're welcome. 24 MR. GRIEF: (Inaudible) different award we 25 ever won. This was an interactive (inaudible) taken by 19 1 the reporters group of people in the industry. They 2 sent out over 64,000 ballots if you will via the 3 Internet to vendor communities and state lottery 4 communities. And they had dozens of commercials that 5 you were to click on in their email and then watch and 6 then vote. And they received a response back of over 7 3,000 votes in that regard. And as Robert said, we were 8 very pleased to have won the best TV commercials for 9 instant ticket award. I think we did -- our advertising 10 vendor and our team, they did a great job on this. It 11 was a totally different direction than we've ever taken 12 on one of our commercials, and we (inaudible). 13 Thank you, Robert. 14 MR. TIRLONI: I'll show you the spot right 15 now. 16 (TV spot was played) 17 MR. TIRLONI: As Gary said, we're very 18 pleased with the way that spot came out. There's a 19 radio spot that has that same all that cash jingle. And 20 after the shoot in Dallas, I couldn't get that song out 21 of my head all the way back to Austin. 22 (Laughter) 23 But it's a great spot and we've gotten 24 really good feedback about it. And I think that shows 25 by our peers in the industry voting that one of the -- 20 1 the best instant TV spots. So that concludes our 2 presentation, but of course we're happy to answer 3 questions if you have any. 4 CHAIRMAN WILLIAMSON: Commissioners, any 5 questions or comments? 6 COMM. KRAUSE: So it helps our sales and 7 brings, I guess, players that have stopped playing back 8 to us when we have big jackpots? 9 MR. TIRLONI: Yes, sir. Absolutely. 10 COMM. KRAUSE: Let's have more of them. 11 COMM. DELGADO: At the time I really 12 prayed there would be one winner in Texas and ends up 13 being a long lost relative and I was the only heir, but 14 it didn't work out that way. 15 (Laughter) 16 MR. TIRLONI: Sorry. 17 CHAIRMAN WILLIAMSON: The add is 18 phenomenal. I stopped and watched it. Of course, I 19 like Broadway stuff anyway, so it's great. But it's, 20 you know, your team and the (inaudible) are they with 21 you? 22 MR. TIRLONI: Yes, ma'am -- 23 CHAIRMAN WILLIAMSON: Anyone here from -- 24 raise your hand. It was a great ad. I think it got the 25 attention. So congratulations for that. 21 1 MR. TIRLONI: Thank you. We appreciate 2 that. 3 AGENDA ITEM NO. V 4 CHAIRMAN WILLIAMSON: We'll go to the next 5 item, report, possible discussion and/or action on 6 transfers to the state and agency's budget status. 7 MS. PYKA: For the record, Kathy Pyka. 8 I'm the controller for the Commission. The first report 9 Commissioners are (inaudible) our transfer and 10 allocation, Foundation School Fund, (inaudible). If you 11 look at the second page of your notebook, you'll see the 12 breakdown of $651.2 million transfer. We had 13 623.4 million transferred to Foundation School Funds, 14 3.1 million to Texas Veterans Commission, and a balance 15 of $24.6 million transferred to (inaudible). This 16 represents a 17 percent increase or $92.3 million in 17 increased revenue transferred to the Foundation School 18 Funds this school year. 19 The next document in your notebook 20 (inaudible) and cumulative transfer to the Foundation 21 School Fund during March of this year are now 22 $14.3 billion. (Inaudible) and of that total 23 78.4 percent was encumbered in expenditures in the 24 second quarter. 25 For bingo budget, funded out of general 22 1 revenue is $14.69 million. And under the second quarter 2 we have expended 56.1 percent of -- or 56.1 percent 3 through the end of the quarter. 4 This concludes my presentation. I'll be 5 happy to answer any questions. 6 CHAIRMAN WILLIAMSON: Thank you. 7 Commissioners, do you have any questions? 8 Thank you. 9 MS. PYKA: Thank you. 10 AGENDA ITEM NO. VI 11 CHAIRMAN WILLIAMSON: Let's go on to Item 12 6. The next -- consideration of and possible discussion 13 and/or action on the Agency Strategic Plan for the years 14 2013 through 2017. Gary, this is your item. 15 MR. GRIEF: Commissioners, this is not an 16 action item to you today but just an update. The 17 Agency's Strategic Plan covering this fiscal year is 18 2013 through 2017. It's due to the Governor's Office of 19 Budget Planning and Policy and the Legislative Budget 20 Board on June 22nd. The management team is currently 21 reviewing the second draft of that document, and we are 22 on schedule to provide each of you with a final draft 23 for your review around the middle of this month, with 24 the expectation that we will be coming to you in the 25 June Commission meeting and asking at that time to 23 1 formally approve the Strategic Plan. 2 That concludes my remarks, and I'll be 3 happy to answer any questions. 4 CHAIRMAN WILLIAMSON: Thank you. 5 Commissioners, any questions of Gary? 6 COMM. KRAUSE: No. 7 AGENDA ITEM NO. VII 8 CHAIRMAN WILLIAMSON: Thank you. We can 9 go on to Item 7, report, possible discussion and/or 10 action on the agency social media. 11 Gary? 12 MR. GRIEF: Commissioners, again I'm not 13 asking you for any action to be taken on this item 14 today, but I just want you to be aware of a very special 15 project that the agency has undertaken. This is all 16 being done in an effort to optimize our communication 17 and outreach to the public. 18 Earlier this year, I authorized a task 19 force that is going to address social media 20 opportunities for the agency. The focus of this group 21 being how the agency can best use social media to 22 advance the mission of the agency. Several other Texas 23 state agencies, several other U.S. lottery 24 jurisdictions, have already developed some very 25 effective strategies in the use of Face Book, Twitter 24 1 and You Tube. My goal is to keep the Texas Lottery at 2 the forefront of those developments. 3 In February our task force met for the 4 first time and discussed the potential for launching a 5 social media presence for the Texas Lottery. We've got 6 multiple divisions involved in this task force, and it's 7 being led by Michael Ender (phonetic) Lottery 8 Operations, and Kelly Price (phonetic) in media 9 relations. 10 Right now that group is evaluating various 11 third-party agreements and trying to develop a 12 comprehensive action plan for us to take regarding a 13 potential social media lunch in the summer. That plan 14 is going to formalize all the processes and procedures 15 that we need to have in place and, hopefully, address 16 any potential legal issues as well. 17 Again this is just an update provided that 18 we come back to you again later this summer with the 19 more comprehensive action plan and ask for your 20 thumbs-up on that, if you will, to go forward and put 21 that in place. That concludes my remarks on that item 22 as well. 23 CHAIRMAN WILLIAMSON: Commissioners, any 24 questions or comments? 25 COMM. DELGADO: No. 25 1 COMM. KRAUSE: Well, I was going to ask 2 what do we gain by that other than other people are 3 doing it? How does that help our operations, our 4 interaction with the public, et cetera. 5 MR. GRIEF: One of the challenges we have, 6 Commissioner, in the lottery industry as well as in the 7 bingo industry is reaching a younger demographic. As 8 you probably know, your children, my children, are very 9 much engaged in the use of social media, Face Book, You 10 Tube and Twitter. We believe this is going to be a very 11 effective and important medium for us to consider for 12 extensive use for our advertising networks. It's the 13 wave of the future, if you will, for communication among 14 that younger demographic. 15 COMM. KRAUSE: So we're talking about 16 advertising, just getting our message out as a sales 17 technique? 18 MR. GRIEF: Public relations, media 19 relations and advertising, all the same thing. 20 COMM. KRAUSE: Okay. 21 COMM. DELGADO: Some of us older people 22 use it, too. 23 (Laughter) 24 MR. GRIEF: Understood. 25 CHAIRMAN WILLIAMSON: What other agencies 26 1 in the state are already using those media? 2 MR. GRIEF: My understanding is Parks & 3 Wildlife has a pretty solid presence in that regard. 4 CHAIRMAN WILLIAMSON: Okay. 5 MR. GRIEF: And I think there's a couple 6 of others. I probably can't recall them off the top of 7 my head, but they're out there. And as you know, 8 several of our statewide elected officials are very 9 active in Twitter, Face Book, et cetera. 10 CHAIRMAN WILLIAMSON: I would probably say 11 more than several. I think it's all the way down to the 12 local races, at least in my community. So I think 13 that's where everybody is going to get their message 14 out. 15 All right. We look forward to hearing 16 that report. 17 MR. GRIEF: Thank you. 18 AGENDA ITEM NO. VIII 19 CHAIRMAN WILLIAMSON: The next item is 20 report, possible discussion and/or action on the 82nd 21 Legislature. 22 Nelda? 23 MS. TREVINO: Good morning, Commissioners. 24 For the record, I'm Nelda Trevino. I'm the Director of 25 Governmental Affairs. And I don't have any updates to 27 1 provide on this particular agenda item, but I'll be glad 2 to answer any questions that you might have. 3 CHAIRMAN WILLIAMSON: Commissioners, do 4 you have any questions? 5 COMM. DELGADO: No. 6 COMM. KRAUSE: No. 7 AGENDA ITEM NO. IX 8 CHAIRMAN WILLIAMSON: All right. Then 9 let's go on to No. 9, report, possible discussion on the 10 Sunset review process involving the agency. 11 MS. TREVINO: And, Commissioners, for the 12 record, I'm Nelda Trevino, the Director of Governmental 13 affairs, and I have a brief update in regards to the 14 agency Sunset review. As you're aware, the Sunset 15 Advisory Commission met on April the 10th to hear public 16 testimony on the Lottery Commission and the 17 recommendations made by the Sunset staff. The agency 18 provided testimony at this meeting and answered 19 questions from the Advisory Commission members. And 20 additionally testimony was provided by several members 21 of the public. And any new issues that were identified 22 by the public will also be considered by the Sunset 23 Advisory Commission. 24 The Advisory Commission is scheduled to 25 meeting again on June 5th and 6th, and at this meeting 28 1 the Commission will make their decisions and adopt their 2 recommendations regarding the Lottery Commission for the 3 Legislature to consider when they convene next January. 4 This concludes my report on this agenda 5 item, and I'll be glad to answer any questions. 6 CHAIRMAN WILLIAMSON: Commissioners, do 7 you any questions? 8 COMM. DELGADO: No. 9 COMM. KRAUSE: No, ma'am. 10 AGENDA ITEM NO. X 11 CHAIRMAN WILLIAMSON: All right. Thank 12 you. Item 10, report, possible discussion and/or action 13 on agency contracts, including amendments or extensions 14 on the drawing audit services, drawing studio and 15 production services, statistical consulting services and 16 surveillance camera products and related services 17 contracts. 18 Mike? 19 MR. FERNANDEZ: Good morning, Madam 20 Chairman, Commissioners. My name is Mike Fernandez. 21 I'm Director of Administration. Item No. 10 on your -- 22 in your notebook is a briefing item, and this is to 23 advise the Commission of Staff's intent to amend and 24 extend four contracts, taking advantage of routine 25 extensions, as well as in support of the new game all or 29 1 nothing. And those services entail the drawing audit 2 services contract, drawing studio and production 3 services contract, the statistical consulting contract 4 and our surveillance and related services contract. So 5 we wanted to advise you that we intend to execute 6 extensions of one year as well as amend those contracts. 7 So if you have any questions, I'll be 8 happy to try to answer them. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you, Mike. 11 Commissioners, do you have any questions? 12 COMM. DELGADO: No. 13 COMM. KRAUSE: No. 14 AGENDA ITEM NO. XI 15 CHAIRMAN WILLIAMSON: Thank you. On to 16 Item 11, consideration of and possible discussion and/or 17 action on external and internal audits and/or reviews 18 related to the Texas Lottery and on the Internal Audit 19 Department's activities. 20 Catherine, please? 21 MS. MELVIN: Good morning, Commissioners. 22 For the record, Catherine Melvin, Director of the, 23 Internal Audit Division. I have no items of update 24 regarding internal audit activity at this time. I did, 25 however, want to update you regarding two external 30 1 reviews, both are statutorily required. One is the 2 financial audit, which will pick up again this summer. 3 I know it feels like we just finished one. The other is 4 the biennial security study, which is actually already 5 launched. I would like to invite those vendors to 6 future Commission meetings to introduce them and 7 certainly address any questions you may have. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioners, do you have any questions? 10 COMM. KRAUSE: No, thank you. 11 COMM. DELGADO: No. 12 AGENDA ITEM NO. XII 13 CHAIRMAN WILLIAMSON: Thank you, Cat. 14 Item 12, report, possible discussion and/or action on 15 GTECH Corporation. 16 MR. GRIEF: Commissioners, other than 17 what's in your notebook, I have nothing further to -- 18 other than what's in your notebook, I have nothing 19 further to report on that item. 20 CHAIRMAN WILLIAMSON: Thank you. 21 Commissioners, do you have any questions? 22 COMM. DELGADO: No. 23 COMM. KRAUSE: No. 24 CHAIRMAN WILLIAMSON: Any questions of 25 GTECH? 31 1 (No response) 2 I guess that's a no. All right. 3 COMM. KRAUSE: No, ma'am. 4 AGENDA ITEM NO. XIII 5 CHAIRMAN WILLIAMSON: Let's go to Item 13, 6 report by the Executive Director and/or possible 7 discussion and action on the agency's operational 8 status, agency procedures, awards and FTE status. 9 Gary? 10 MR. GRIEF: Commissioners, I have 11 information for you in your notebooks. Other than 12 what's there, I have nothing further to report. 13 CHAIRMAN WILLIAMSON: All right. 14 Commissioners, any questions? 15 COMM. KRAUSE: No, ma'am. 16 COMM. DELGADO: No. 17 AGENDA ITEM NO. XV 18 CHAIRMAN WILLIAMSON: All right. Let's go 19 on to Item 15, which is public comment, and I have no 20 one signed up to do that. 21 AGENDA ITEM NO. XIV 22 CHAIRMAN WILLIAMSON: So we will go to 23 Item 14, the consideration of the status and possible 24 entry of orders in cases posted on the meeting agenda. 25 So, Kim, would you like to -- 32 1 MS. KIPLIN: Commissioners, with your 2 permission, I'd like to take Letters A through H that 3 are on the Open Meetings notice under Item -- Agenda 4 Item XIV. Commissioners, these are all lottery 5 revocation cases in which there were insufficient funds 6 available at the time that the Lottery swept. The 7 Administrative Law Judge in each of these cases has 8 recommended revocation of the license. Staff recommends 9 that you approve the Administrative Law Judge's 10 recommendation in each of these cases. This is on your 11 mass docket, so you have one order that would adopt them 12 if you vote that way. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you. 15 Commissioners, do you have any questions 16 of Kim on these cases? 17 COMM. KRAUSE: This is A through K? 18 CHAIRMAN WILLIAMSON: A through H. 19 MS. KIPLIN: A through H. 20 CHAIRMAN WILLIAMSON: Is there a motion? 21 COMM. KRAUSE: I'd like to make a motion 22 that we adopt the Administrative Law Judge's 23 recommendation in Item Nos. A through H on Item No. 14 24 (sic) for our agenda -- 25 CHAIRMAN WILLIAMSON: It's 14 -- 33 1 COMM. KRAUSE: -- 14 of our agenda. 2 CHAIRMAN WILLIAMSON: Thank you. Is there 3 a second? 4 COMM. DELGADO: Second. 5 CHAIRMAN WILLIAMSON: All in favor? 6 (All those voting in favor so responded_ 7 Motion passes three/zero 8 MS. KIPLIN: And, Commissioners, I have 9 that order that I'll present to you. 10 If I could now go with your permission to 11 letter I, that's the Check N Go matter. Commissioners, 12 this was a contested case proceeding in the State Office 13 of Administrative Hearings. The issue was whether the 14 principal in the corporation's criminal conviction was a 15 disqualifying criminal conviction, was it a crime of 16 moral turpitude. The staff's position was that it was. 17 Respondent did appear and challenged that. The 18 Administrative Law Judge agreed with the Respondent and 19 concluded that the criminal offense was not a 20 misdemeanor involving moral turpitude. 21 The gentleman was charged with false 22 report to a police officer, plead down to a Class C 23 attempted false report to a police officer. The staff 24 has accepted the Administrative Law Judge's proposed 25 findings and conclusion and did not file exceptions, and 34 1 staff would recommend that you vote to approve the 2 Administrative Law Judge's recommendation. 3 So what that means is that for this case 4 and these facts, an attempted false report to a police 5 officer, Class C misdemeanor would not be considered a 6 misdemeanor of moral turpitude. 7 CHAIRMAN WILLIAMSON: All right. 8 Commissioners, do you have any questions? 9 COMM. DELGADO: No. 10 COMM. KRAUSE: No, ma'am. 11 CHAIRMAN WILLIAMSON: Do I hear a motion? 12 COMM. KRAUSE: I make a motion that we 13 adopt the Administrative Law Judge's recommendation in 14 Docket No. 362-12-2849. 15 CHAIRMAN WILLIAMSON: Is there a second? 16 COMM. DELGADO: Second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 (All those voting in favor so responded) 19 Thank you. 20 MS. KIPLIN: And, Commissioners, I have an 21 order for your action today. 22 Commissioners, with your permission, I'd 23 like to take the remaining letters, J through U 24 together. These are all agreed orders between Staff and 25 the respective Respondents, but the nature of the 35 1 allegations and conduct are common in that the Staff's 2 position was that there was a -- there were charitable 3 raffles that were being conducted in two halls by the 4 organizations that are identified that were in violation 5 of the Charitable Raffle Enabling Act, which means that 6 it would be a prohibited game of chance under the Bingo 7 Enabling Act. So that's how we get into it being a 8 violation of the Bingo Enabling Act. 9 There is another item, Letter J, and that 10 was a gentleman -- that is a gentleman who is on the 11 registry of bingo workers. He has also agreed to the 12 proposed terms of the settlement. In each of these 13 cases there's an administrative penalty that's been 14 agreed upon, an amount that is deemed suspended from the 15 administrative penalty that was agreed upon, subject to 16 compliance of the terms of the -- of each of these 17 orders, and also an agreement not to conduct raffles for 18 two years, but beginning from the period of January 1, 19 2012. And I believe there's confirmation that between 20 January and May of this year there have been no raffles 21 that have been conducted. 22 I can tell you that Mr. Sanderson is here 23 on behalf of Staff if you have any questions; Mr. White 24 was the agency counsel; and the Respondents are also 25 represented by Mr. Fenoglio and Mr. Barnstone, and I 36 1 believe that they have filed with you appearance forms, 2 witness affirmation forms in the event that you-all 3 would have any questions. 4 Staff does recommend that you do vote to 5 approve each of these settlement agreements and proposed 6 orders in each of these matters. 7 CHAIRMAN WILLIAMSON: Okay. Mr. Fenoglio 8 and Mr. Barnstone, do either one of y'all have anything 9 you want to say before we ask questions? I mean, would 10 y'all like to come up and say something first or just 11 wait and see if we have any questions? 12 MR. FENOGLIO: For the record, Steve 13 Fenoglio. No, we do not wish to say anything -- 14 MR. BARNSTONE: -- Barnstone for the 15 lessors, and only if the Commission has questions. 16 CHAIRMAN WILLIAMSON: Okay. I just wanted 17 to give you that opportunity. 18 All right. Commissioners, do you have an 19 questions or comments? 20 COMM. DELGADO: No, ma'am. 21 COMM. KRAUSE: My only comment is that 22 Staff and the Respondents have agreed, then we should 23 adopt their settlement. 24 CHAIRMAN WILLIAMSON: All right. Then is 25 there a motion? 37 1 COMM. KRAUSE: I'll make a motion that we 2 adopt the agreed orders proposed by Staff and 3 Respondents in Items J through U of No. 14 on the 4 agenda. 5 CHAIRMAN WILLIAMSON: Is there a second? 6 COMM. DELGADO: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 (All those voting in favor so responded) 9 CHAIRMAN WILLIAMSON: All right. Motion 10 passes three-zero. 11 MS. KIPLIN: Okay. Commissioners, there 12 is an order for each one of these. There are unique 13 terms as it relates to the -- particularly the 14 administrative penalty, and so I'll -- with your 15 permission I'll present this to you. 16 CHAIRMAN WILLIAMSON: All right. 17 MS. KIPLIN: And that concludes the docket 18 for today on orders, enforcement orders. 19 CHAIRMAN WILLIAMSON: Okay. 20 COMM. KRAUSE: This must be record. 21 AGENDA ITEM NO. XVI 22 CHAIRMAN WILLIAMSON: So at this time I 23 move the Texas Lottery go into Executive Session to 24 deliberate the duties and evaluation of the Executive 25 Director, Internal Audit Director and Charitable Bingo 38 1 Operations Director, and to deliberate the duties of the 2 General Counsel and Human Resources Director pursuant to 3 Section 551-074 of the Texas Government Code; and to 4 receive any legal advice regarding pending and 5 contemplated litigation pursuant to Section 6 551.071(1)(A), and settlement offers pursuant to Section 7 551.071(B) Texas Government Code, and to receive legal 8 advice pursuant to Section 551.0712 of the Texas 9 Government Code, including but not limited to those 10 items posted on the Open Meetings notice for purposes of 11 receiving legal advice. 12 Is there a second? 13 COMM. DELGADO: Yes, there is. Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 (All those voting in favor so responded) 16 CHAIRMAN WILLIAMSON: The vote is 17 three-zero. We'll start Executive Session at 11:00. 18 (Recess: 10:42 a.m. to 11:42 a.m.) 19 AGENDA ITEM NO. XVII 20 CHAIRMAN WILLIAMSON: The Texas Lottery 21 Commission is out of the Executive Session. The time is 22 11:42 a.m., and there is no action to be taken as a 23 result of the Executive Session. 24 AGENDA ITEM NO. XVIII 25 CHAIRMAN WILLIAMSON: Is there a motion to 39 1 adjourn? 2 COMM. DELGADO: Yes, so moved. 3 COMM. KRAUSE: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 (All those voting in favor so responded) 6 CHAIRMAN WILLIAMSON: We are now no longer 7 in session. 8 (Proceedings concluded at 11:42 a.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 40 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lou Ray, Certified Shorthand Reporter 5 in and for the State of Texas, do hereby certify 6 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, 10 later reduced to typewritten form under my 11 supervision and control and that the foregoing pages 12 are a full, true, and correct transcription of the 13 original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 15th day of May 2012. 16 17 18 _______________________________ LOU RAY 19 Certified Shorthand Reporter CSR No. 1791 - Expires 12/31/13 20 Firm Registration No. 276 21 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 22 Austin, Texas 78752 512.474.2233 23 24 25 Job No. 100703