1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 REGULAR MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § THURSDAY, SEPTEMBER 20, 2012 § 9 10 11 12 COMMISSION MEETING 13 THURSDAY, SEPTEMBER 20, 2012 14 15 16 17 BE IT REMEMBERED THAT on Thursday, the 20th 18 day of September 2012, the Texas Lottery Commission 19 meeting was held from 10:04 a.m. until 11:08 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 COMMISSIONERS J. WINSTON KRAUSE and 23 CYNTHIA TAUSS DELGADO. The following proceedings 24 were reported via machine shorthand by Aloma J. Kennedy, 25 a Certified Shorthand Reporter. 2 1 APPEARANCES 2 CHAIRMAN: Ms. Mary Ann Williamson 3 COMMISSIONERS: 4 Mr. J. Winston Krause Ms. Cynthia Tauss Delgado 5 GENERAL COUNSEL: 6 Mr. Robert F. Biard 7 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 8 ACTING DIRECTOR, CHARITABLE BINGO OPERATIONS: 9 Mr. Bruce A. Miner 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, SEPTEMBER 20, 2012 ......... 7 4 AGENDA ITEM NO. I - Meeting Called to Order ........ 7 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on lottery sales and revenue, game 6 performance, new game opportunities, advertising, market research, trends, and game contracts, 7 agreements, and procedures ......................... 7 8 AGENDA ITEM NO. III - Report, possible discussion and/or action on transfers to the State ............ 16 9 AGENDA ITEM NO. IV - Report, possible discussion 10 and/or action on the 82nd Legislature .............. 21 11 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action on external 12 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on 13 the Internal Audit Department’s activities ......... 22 14 AGENDA ITEM NO. VI - Report, possible discussion and/or action on amendments to the 2010 lottery 15 operations and services contract, including whether the negotiation of the lottery operator's 16 contract in an open meeting would have a detrimental effect on the Commission's position 17 in negotiations of the lottery operator contract ... 22 18 AGENDA ITEM NO. VII - Report, possible discussion and/or action on GTECH Corporation ................. 23 19 AGENDA ITEM NO. VIII - Report by the Executive 20 Director and/or possible discussion and/or action on the agency’s operational status, 21 agency procedures, awards, and FTE status .......... 24 22 23 24 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. IX - Report by the Acting Charitable Bingo Operations Director and 4 possible discussion and/or action on the Charitable Bingo Operations Division’s 5 activities, including updates on licensing, accounting and audit activities, pull-tab 6 review, special projects, and upcoming operator training .................................. 27 7 AGENDA ITEM NO. X - Consideration of the 8 status and possible entry of orders in: A. Docket No. 362-12-6851 – Big Pine Beer 9 and Wine B. Docket No. 362-12-7021 – Save N Go 10 C. Docket No. 362-12-7023 – Lagow Food Mart 11 D. Case No. 2012-564 – American Bingo Unit Accounting Trust 12 E. Case No. 2012-703 – VFW Post 5621 Nolan D. Pickett 13 F. Case No. 2012-724 – Bubba Moore Memorial Group, Inc. 14 G. Case No. 2012-431 – Congregation of Maronite Lebanese Missionaries 15 H. Case No. 2012-432 – St. George Ladies Altar Society 16 I. Case No. 2012-433 – Ameleb Club of San Antonio 17 J. Case No. 2012-434 – St. Gerard Catholic High School 18 K. Case No. 2012-445 – St. George Maronite Center ........................ 29 19 AGENDA ITEM NO. XI - Public comment ................ 32 20 AGENDA ITEM NO. XII - Commission may meet 21 in Executive Session: A. To deliberate the duties and evaluation 22 of the Executive Director pursuant to Section 551.074 of the Texas Government 23 Code. B. To deliberate the duties and evaluation 24 of the Internal Audit Director pursuant to Section 551.074 of the Texas 25 Government Code. 5 1 TABLE OF CONTENTS 2 PAGE 3 C. To deliberate the duties and evaluation of the Acting Charitable Bingo Operations 4 Director pursuant to Section 551.074 of the Texas Government Code. 5 D. To deliberate the duties, appointment, and/or employment of the Charitable 6 Bingo Operations Director pursuant to Section 551.074 of the Texas Government 7 Code. E. To deliberate the duties of the General 8 Counsel pursuant to Section 551.074 of the Texas Government Code. 9 F. To deliberate the duties of the Human Resources Director pursuant to Section 10 551.074 of the Texas Government Code. G. To receive legal advice regarding pending 11 or contemplated litigation pursuant to Section 551.071(1)(A) and/or to receive 12 legal advice regarding settlement offers pursuant to Section 551.071(1)(B) of the 13 Texas Government Code and/or to receive legal advice pursuant to Section 551.071(2) 14 of the Texas Government Code, including but not limited to: 15 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 16 Commission et al. Willis Willis v. Texas Lottery 17 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food 18 Store #2, Barkat N. Jiwani and Pankaj Joshi 19 Hicks, et al. v. Singer Asset Holdings, LLC, et al. 20 Texas Lottery Commission v. Warren, et al. 21 Employment law, personnel law, procurement and contract law, 22 evidentiary and procedural law, and general government law. 23 H. To deliberate the negotiation of the lottery operator's contract pursuant to 24 Section 467.030 of the Texas Government Code ........................................ 32 25 6 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XIII - Return to open session for further deliberation and possible action 4 on any matter discussed in Executive Session ....... 33 5 AGENDA ITEM NO. XIV - Adjournment .................. 33 6 MEETING ADJOURNED .................................. 34 7 REPORTER'S CERTIFICATE ............................. 35 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 1 P R O C E E D I N G S 2 THURSDAY, SEPTEMBER 20, 2012 3 (10:04 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 September 20, 2012. The 8 time is 10:04 a.m. Commissioners Krause and Delgado are 9 present, and we do have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: The first item is 12 the report, possible discussion and/or action on lottery 13 sales and revenue, game performance, new game 14 opportunities, advertising, market research, trends and 15 game contracts, agreements and procedures. 16 Kathy and Robert, please. 17 MS. PYKA: Thank you. Good morning, 18 Commissioners. My name is Kathy Pyka. I'm the 19 Controller for the Commission. And with me to my right 20 is Robert Tirloni, our Products Manager. 21 Commissioners, this morning we're going to 22 be providing an update for you on the final results of 23 Fiscal Year 2012 sales. And our first chart that we 24 have for you this morning reflects the comparative sales 25 through August 31, 2012, as compared to Fiscal Year 8 1 2011. 2 To focus on the bottom of the chart are 3 total sales for Fiscal Year 2012, are $4.19 billion 4 which is an increase of $379.5 million as comparted to 5 the previous fiscal year. Commissioners, this not only 6 marks the first time that we've exceeded $4 billion in 7 total sales, it's our highest sales level in the history 8 of the Commission. 9 Moving on to instant ticket sales, which 10 are reflected on the blue bar, are at $3.09 billion 11 dollars, which is up $243.8 million increase over Fiscal 12 Year 2011. And again, Commissioners, this is a record. 13 This is the first time we've reached $3 billion in 14 sales, and it's the highest level of instant ticket 15 sales in the history of the Commission. 16 And then moving on to draw sales, which 17 are on the red bar, they amounted to $1.1 billion for 18 the fiscal year, which is $135.7 million increase over 19 last fiscal year. And it's our best year of draw sales 20 since 2004. 21 Move on to the next slide, which includes 22 comparative sales by game, comparing Fiscal Year 2012 to 23 Fiscal Year 2011. The jackpot games are highlighted in 24 the white font. And, as you can see, our total 2012 25 sales came in at $686 million. This is $124.6 million 9 1 increase over last fiscal year. And with the exception 2 of a very minor difference on Lotto Texas, all of our 3 draw games came in with sales increases over last fiscal 4 year. 5 I would like to first focus on Powerball. 6 It came in with a $71 million sales growth over Fiscal 7 Year 2011, which is also a 71 percent sales increase 8 over Fiscal Year 2011. 9 And then Mega Millions wrapped up at 10 $211.5 million, which is a $35 million increase over 11 last fiscal year and also a 20 percent sales increase. 12 Moving on to daily games, those are 13 highlighted in the green font. And we wrapped up the 14 year on daily games at $418.7 million. This is an 15 $11.1 million increase over the previous fiscal year. 16 And again, all of our daily games show increases year 17 over year, with the exception of a minor decline, 18 $300,000 on Pick 3. 19 And a special note here. We would like to 20 highlight again the Daily 4 game. This is our highest 21 level of Daily 4 sales in the history of the game. It 22 came in at $68.5 million, which is just under a 23 $10 million game, compared to the previous year. 24 Commissioners, as stated earlier, our 25 instant ticket sales came in at $3.86 million, which is 10 1 a $243.8 million sales increase over the previous fiscal 2 year. And then before I wrap up, just a quick snapshot 3 on that $379.5 million sales increase. If we summarize 4 where those increases came from, essentially two-thirds 5 from instant ticket sales. We have another 20 percent 6 that was from the Powerball increase. And essentially 7 the balance came from our Mega Millions increase. So 8 all in all, a phenomenal year end sales summary for us. 9 And with that, Robert will now move on to 10 instant ticket by price point. 11 MR. TIRLONI: Good morning, Commissioners. 12 For the record, Robert Tirloni, Products Manager for the 13 Commission. 14 So this first slide is our instant sales 15 broken out by price point for the entire fiscal year. 16 So this represents just under $3.1 billion in instant 17 ticket sales, not a lot of change in the ranking. Our 18 $5.00 price point continues to be our best selling price 19 point. That's represented in the yellow, the biggest 20 piece of the pie. That represents just over a billion 21 dollars in instant game sales. 22 The $10.00 is our second best selling 23 price point. It's kind of in the lime green, and that's 24 bringing in for the year just over $501 million. 25 Our $20.00 is our third best selling price 11 1 point for the fiscal year, just under $418 million. 2 And then our fourth best is the $2.00 3 price point, and that's in red. 4 The very thin sliver of the pie is the 5 $7.00. I wanted to note, that's a discontinued price 6 point for us. So there's one $7.00 game that's out for 7 sale right now. That's our last one. We discontinued 8 that price point because of the opportunity for growth 9 with the $5.00 and the $10.00. 10 So the $7.00, after talking with and 11 working with GTECH and the sales team here in Texas, we 12 realized that that $7.00 was taking up dispenser space 13 that could be -- where we could place a $5.00 or a 14 $10.00 and realize better sales and better revenue gain. 15 So this next table shows -- something is 16 wrong with our laptop today, so I apologize. This next 17 table shows our instant ticket sales by price point, and 18 it's a comparison of '11 to '12. So the red bars are 19 Fiscal Year '12 sales, the blue bars are Fiscal Year '11 20 sales. 21 I think the big take-away from this whole 22 table is that every single one of our price points 23 experienced growth in Fiscal '12 compared to Fiscal '11, 24 with most of that growth coming at the $5.00 and at the 25 $10.00 price points. Again, the $7.00 is showing a 12 1 decline in '12, but that's because that price point is 2 being phased out. 3 This next slide is the top 10 instant 4 games for the fiscal year. So at the very top, our 5 No. 1 ranking game for the entire fiscal year is one of 6 our spotlight games. That's $500 million Frenzy. 7 That's a $20.00 spotlight game. 8 Slot No. 2 or Rank No. 2 and Rank No. 3 9 are also spotlight games. The $10.00 game is our first 10 $10.00 spotlight game ever that we just launched back in 11 the spring. And then the third ranked spotlight game, 12 $500 million Blockbuster, that was our very first 13 spotlight game to be introduced. 14 So these spotlight games are the large 15 print production games where we print an extraordinarily 16 large number of tickets. It gives us the ability to 17 offer impressive top prizes, impressive secondary 18 prizes. The game has a big prize fund with a high 19 volume of prizes. And the great part about being able 20 to create these games is, they give us a lot of 21 marketing communication opportunities. 22 And so we've had some really good 23 advertising campaigns that have supported all of these 24 spotlight games. You might remember, $500 million 25 Blockbuster had the elephant in that campaign where the 13 1 elephant was kind of the spokesperson to convey how big 2 the game was. And Cash Spectacular kind of had the 3 Broadway musical glee type feel to it. 4 So these games are important, obviously, 5 for their sales and revenue generation, but they're also 6 important because they give us the opportunity to 7 develop these advertising campaigns to support them. I 8 think we've had really good ad campaigns that have 9 supported these games and communicated to players how 10 exciting they are because of the prizes and all of the 11 other positive things that they offer. 12 If you look down the rest of the ranking, 13 we have our cash word games. That's a core game for us. 14 We have two different versions, and both of those 15 versions are in the top 10. We have another core 16 offering, Bingo, at the $5.00 price point. Weekly Grand 17 is an annuity style game that's been around actually 18 since the lottery started in the early nineties, very 19 popular game. And we have our $10.00 Texas Lottery 20 Black, Version IV. I should also point, we have our 21 $50.00 game in the top 10. 22 I think the most important thing about 23 this top 10 when I look at it is that all of our price 24 points except our one dollar price point are represented 25 in this table, in the top 10. And I think what that 14 1 shows is that we're creating entertaining, attractive 2 games across our whole product mix. So we have our 3 twos, our threes, our fives, our tens, our twenties, and 4 even our 50 represented. And I think basically what 5 that says is that there's something for everybody. 6 And so if you are a $2.00 player or a 7 $3.00 player, we have an attractive product offering for 8 you. If you are a $20.00 or a $50.00 player, we also 9 have an attractive product offering for you. You know, 10 when I look at this top 10, I'm glad to see that we have 11 that mix of all our prize point, because I think that 12 shows that we are putting out products that players find 13 appealing, again across the entire product mix from our 14 lower price points all the way up to our highest price 15 point. 16 CHAIRMAN WILLIAMSON: All right. Yes. 17 That's a great graphic. 18 MR. TIRLONI: Thank you. 19 MS. PYKA: Commissioners, that concludes 20 our presentation this morning. We will be happy to 21 answer any questions. 22 CHAIRMAN WILLIAMSON: Commissioner, do you 23 have any questions? 24 COMMISSIONER KRAUSE: I have one. 25 CHAIRMAN WILLIAMSON: Okay. 15 1 COMMISSIONER KRAUSE: How many instant 2 games do we have if we've got the top 10? 3 MR. TIRLONI: We launch approximately 90 4 to 93 new scratch-off games a year. And at any time 5 there's probably I guess about 40 to 50 that are in the 6 warehouse that are being shipped out, approximately. 7 But new game launches are above 90. We have pretty much 8 new instant games starting almost every week. 9 COMMISSIONER KRAUSE: So they come and go? 10 MR. TIRLONI: Oh, yes, continuous -- 11 COMMISSIONER KRAUSE: Except for the 12 annuity? 13 MR. TIRLONI: That one we change out 14 regularly. So even our core games like our bingo and 15 our crossword and Weekly Grand, we change the look of 16 it, we change the colors, we tweak it. But, yes, that 17 game has been around since pretty much the inception. 18 MS. PYKA: And also I think the graphic 19 speaks well, the necessity and the advantage of 20 advertising, I think to, you know, our product sales. I 21 mean, how critical that is to the sale. 22 MR. TIRLONI: Absolutely. And, for 23 example, for the Blockbuster game, that advertising 24 campaign that I mentioned featured the elephant. Well, 25 the anecdotal information that we are getting from the 16 1 sales team and from the retailers was that players were 2 going in and actually asking for the elephant game. 3 They weren't asking for $500 Million Blockbuster, they 4 were asking for the elephant game. So, you know, in my 5 mind, that's a pretty clear signal that our advertising 6 messages were getting through to the players, and that's 7 the reason they were coming in and asking for that game 8 in that way. 9 CHAIRMAN WILLIAMSON: Okay. Thank you so 10 much. 11 MR. TIRLONI: Thank you. 12 AGENDA ITEM NO. III 13 CHAIRMAN WILLIAMSON: The next item is 14 report, possible discussion and/or action on transfers 15 to the state. 16 Kathy, if you will continue. 17 MS. PYKA: Thank you, Madam Chair. Again 18 for the record, my name is Kathy Pyka, Controller for 19 the Commission. 20 Commissioners, the first report in your 21 notebook includes the transfers and allocations to the 22 Foundation School Fund, the Texas Veterans Commission 23 and the allocation of unclaimed prizes for the period 24 ending August 31, 2012. 25 Total cash transfers to the state amounted 17 1 to $1.154 billion for Fiscal Year 2012. This marks our 2 ninth consecutive year in which we've transferred more 3 than one billion dollars to the State of Texas, and it's 4 our largest cash transfer to the state since 1998. 5 The second page in your notebooks reflects 6 the detailed information for the monthly transfers. Of 7 the $1.154 billion transfer to the state, $1.096 billion 8 was transferred to the Foundation School Fund. We 9 transferred $4.7 million to the Texas Veterans 10 Commission. And the balance of $52.3 million was 11 transferred from unclaimed lottery prizes. 12 Commissioners, the transfer to the 13 Foundation School Fund represents a 13.8 percent 14 increase, or $133 million over the amount transferred in 15 Fiscal Year 2011. This is our second highest transfer 16 to the Foundation School Fund in the history of the 17 Commission. 18 Commissioners, the Commission's revenue 19 increase can partially be attributed to successful cost 20 containment measures that we've also had within our 21 administrative budget. Our administrative expenditure 22 rate for Fiscal Year 2012 was finalized at 4.52 percent 23 as a percent of total gross sales. And, Commissioners, 24 this is the lowest administrative rate in the 25 Commission's history. 18 1 I wanted to highlight that a large 2 component of the administrative savings in 2012 was a 3 significant reduction in the compensation paid to the 4 lottery operator, following our new contract that became 5 effective in 2012. The new compensation rate is 6 slightly over 2.2 percent of gross sales, is an 18 7 percent reduction from the rate previously paid under 8 the previous contract, and it resulted in a savings to 9 the state and increased contributions in 2012 of 10 $20.5 million. 11 Commissioners, our total cumulative 12 transfers to the Foundation School Fund as of August are 13 now $14.7 billion. 14 This concludes my presentation. I would 15 be happy to answer any questions. 16 CHAIRMAN WILLIAMSON: Thank you. 17 Commissioners, do you have any questions 18 or comments? 19 COMMISSIONER DELGADO: I do, because I'm 20 totally amazed by that unclaimed prizes number. 21 CHAIRMAN WILLIAMSON: Is that mostly 22 scratch-offs or -- 23 MS. PYKA: It's a mix between both draw 24 games and scratch-off games. 25 COMMISSIONER KRAUSE: It's just 19 1 incredible. Of course, I probably have a few in there, 2 too. 3 MS. PYKA: Thank you, Commissioners. 4 CHAIRMAN WILLIAMSON: I do have a 5 question, and I don't know whether Gary wants to comment 6 on this or you. I'm aware that the outgoing on the 7 Veterans tickets is kind of declining. And, you know, 8 if either one of y'all want to just speak to that just 9 for a minute, the particulars or maybe just the horizons 10 of that. 11 MR. GRIEF: Yes. You're absolutely right, 12 Chairman. The revenue on the sale of the Veterans 13 scratch-off game is declining. 14 I had an opportunity to testify in front 15 of the Senate Veterans Affairs Committee last month and 16 also yesterday to the staff from the Governor's Office 17 of Budget and Planning and the LBB. And I told them the 18 same thing, that the experience that we have with 19 scratch-off games here in Texas is that our players like 20 something new and entertaining and something different 21 than they saw last month or last week even. 22 And we have worked very closely with the 23 Veterans Commission each time we've issued a new 24 Veterans scratch-off game to develop a theme and a play 25 style and a color scheme on the front of a scratch-off 20 1 game, et cetera, that will be attractive. 2 But at the end of the day, it's still a 3 veterans ticket, and the statute requires that we note 4 that on the face of the ticket. And we're seeing just a 5 steady decline each time we issue a new version of that 6 game. We brought that to the attention of the 7 leadership offices for them to consider. And perhaps 8 there will be some discussion in this next session about 9 some other opportunities for revenue producing for that 10 particular fund. 11 But you're absolutely right with that 12 observation. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you. 15 MR. GRIEF: And, Madam Chair -- 16 CHAIRMAN WILLIAMSON: Yes. 17 MR. GRIEF: -- before we leave this 18 subject, I would just like to make a couple of comments. 19 CHAIRMAN WILLIAMSON: Okay. 20 MR. GRIEF: My sense is -- and I hope 21 you've taken away from Kathy and Robert's presentation 22 that the lottery team has really hit its stride, and 23 we're hitting on all cylinders right now. And when I 24 say the lottery team, I'm talking about our staff who 25 are involved in the promotion and sale of lottery 21 1 tickets but also our staff who are involved in cost 2 containment like Kathy mentioned, monitoring of 3 contracts, the saving of money. And I'll add to that 4 mix our GTECH team who is just as important as we market 5 and sell these products, our three vendors who print out 6 our scratch-off games -- Scientific Games, GTECH 7 Printing and Pollard Banknote -- and then our 8 advertising vendor, LatinWorks. 9 This is a cohesive group of all these 10 different entities that work very closely together on a 11 daily basis. And I think you're seeing the results of 12 that in what's just been presented to you this year. So 13 my appreciation goes out to all those folks for the 14 great job they did this year. 15 CHAIRMAN WILLIAMSON: Yes. And, of 16 course, I've bragged on y'all before. It is a group 17 effort, and we appreciate it. 18 Commissioners? 19 MS. PYKA: Thank you, Commissioners. 20 AGENDA ITEM NO. IV 21 CHAIRMAN WILLIAMSON: The next item is the 22 report, possible discussion and/or action on the 82nd 23 Legislature. There is nothing to report, so we will 24 skip over that. 25 22 1 AGENDA ITEM NO. V 2 CHAIRMAN WILLIAMSON: The next item is 3 consideration of and possible discussion and/or action 4 on external and internal audits and/or reviews relating 5 to the Texas Lottery Commission and/or on the Internal 6 Audit Department's activities. 7 Catherine. 8 MS. MELVIN: Thank you, Madam Chair. For 9 the record, Catherine Melvin, Director of the Internal 10 Audit Division. 11 I only have one item I wanted to mention 12 this morning, and it's related to an outstanding State 13 Auditor's Office report. I just wanted to mention that 14 that is still not yet published. The audit work has 15 been completed. Management has provided their responses 16 to that report. And we're in communication with the 17 State Auditor's Office, and we expect that report to be 18 released shortly. 19 CHAIRMAN WILLIAMSON: All right. Thank 20 you. 21 AGENDA ITEM NO. VI 22 CHAIRMAN WILLIAMSON: Our next item is 23 report, possible discussion and/or action on amendments 24 to the 2010 lottery operations and services contract, 25 including whether the negotiation of the lottery 23 1 operator's contract in an open meeting would have a 2 detrimental effect on the Commission's position in 3 negotiations of the lottery operator contract. 4 Mike. 5 MR. FERNANDEZ: Good morning, 6 Commissioners. For the record, my name is Mike 7 Fernandez. I'm Director of Administration. 8 This item is to advise the Commission of 9 the staff's intent to amend the lottery operator 10 contract for the systems operation of our 1-800 service 11 line number. Right now we hope to have that amendment 12 in place within the next few weeks and toward that 13 revised software early in January. 14 If you have any questions, I'll be happy 15 to answer them. 16 CHAIRMAN WILLIAMSON: Okay. 17 Commissioners, do you have any questions? 18 COMMISSIONER KRAUSE: No. 19 COMMISSIONER DELGADO: No. 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you. 22 AGENDA ITEM NO. VII 23 CHAIRMAN WILLIAMSON: The next item is 24 report, possible discussion and/or action on GTECH 25 Corporation. 24 1 Gary. 2 MR. GRIEF: Commissioners, other than 3 what's in your notebook, I have nothing further to 4 report on that item. 5 CHAIRMAN WILLIAMSON: All right. Thank 6 you. 7 AGENDA ITEM NO. VIII 8 CHAIRMAN WILLIAMSON: The next item is the 9 report by the Executive Director and/or possible 10 discussion and/or action on the agency's operational 11 status, agency procedures, awards and FTE status. 12 Gary, this is also your item. 13 MR. GRIEF: Commissioners, other than the 14 items in your notebook, I do have one item I would like 15 to report on this morning. 16 Last week I participated in the World 17 Lottery Summit 2012. This was a joint venture between 18 the World Lottery Association, otherwise know as WLA, 19 and the North American Association of State and 20 Provincial Lotteries, know as NASPL. This event was 21 hosted by Lotto Quebec, and it featured the largest 22 lottery industry trade show in history. The summit also 23 involved a three-day business program involving leaders 24 from the international lottery community as well as some 25 very notable outside speakers as well. 25 1 I participated in one session which was 2 called a lottery pep talk in which I moderated a 3 discussion between the directors of the Mexico, the 4 French and the Kentucky lotteries. This session 5 demonstrated how the mission and values of governmental 6 lotteries around the world are very similar but, even 7 more important, very critical to our role in trying to 8 fend off the competition from the growing number of 9 gambling entities in the private sector. 10 A meeting of the Mega Millions group, of 11 which I'm a lead director, also occurred during this 12 conference. And I'm pleased to report that the 13 initiative that I'm spearheading to try to consolidate 14 Mega Millions and the Multi-State Lottery Association 15 which oversees Powerball is still active, and we're 16 making slow but steady progress in that regard. 17 Also of note, MUSL, which does oversee the 18 Powerball game, took a vote in their meeting during the 19 week to allow the State of California to begin selling 20 Powerball around January of next year. And California 21 has not been selling Powerball up to this point. 22 No changes to the Powerball game, no 23 changes to the matrix are anticipated. My understanding 24 is, that game is geared to handle the influx of 25 population from California. And the expectation is that 26 1 jackpots will grow faster with that additional 2 population and potentially higher as well. 3 And, finally, NASPL held its annual 4 election of officers, and I was elected as first vice 5 president for the coming year. 6 Commissioners, that concludes my report. 7 I will be happy to answer any questions. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioners, do you have any questions? 10 COMMISSIONER DELGADO: Just 11 congratulations. 12 MR. GRIEF: Thank you. 13 CHAIRMAN WILLIAMSON: Yes. 14 COMMISSIONER KRAUSE: On California's 15 adopting the Mega Millions -- 16 MR. GRIEF: Powerball. 17 COMMISSIONER KRAUSE: Powerball. Okay. 18 Did they have anything to do with the huge jackpot that 19 we had this year? 20 MR. GRIEF: Well, certainly their -- 21 COMMISSIONER KRAUSE: They have other 22 multi-state games? 23 MR. GRIEF: They have Mega Millions now. 24 They've been a long-time participant in Mega Millions, 25 just not in Powerball. 27 1 COMMISSIONER KRAUSE: Okay. 2 CHAIRMAN WILLIAMSON: All right. Thank 3 you. 4 It's good that Texas is so well 5 represented in the national group. I know you guys all 6 know this, but Gary is highly thought of within the 7 lottery world, and we're fortunate that we have that 8 position now. 9 MR. GRIEF: Thank you. 10 CHAIRMAN WILLIAMSON: We're good for that 11 one. 12 AGENDA ITEM NO. IX 13 CHAIRMAN WILLIAMSON: All right. The next 14 item it report by the Acting Charitable Bingo Operations 15 Director and possible discussion and/or action on the 16 Charitable Bingo Operations Division's activities, 17 including updates on licensing, accounting and audit 18 activities, pull-tab review, special projects and 19 upcoming operator training. 20 Bruce, this is your item. 21 MR. MINER: Good morning. For the record, 22 my name is Bruce Miner, Acting Director for charitable 23 Bingo Operations division. 24 And if I could refer you to the second 25 page of the report in your notebook, I would like to 28 1 recognize Debbie Parpounas and her audit staff for the 2 hard work they've done in completing a substantial 3 number of audits and inspections for the month of 4 August. 5 Of the 70 games shown, 23 were inspections 6 and 47 were audits. They have worked diligently on 7 process changes to increase the financial monitoring for 8 the bingo industry, with the limited resources available 9 that we have and with a concentrated effort to reduce 10 the audit hours while at the same time monitoring these 11 high risk licensees. 12 Additionally, I want to take time to thank 13 the lottery staff for their help during this transition 14 period. In the past weeks, I've worked very closely 15 with Legal, Office of the Controller and Enforcement. 16 And their assistance has been extremely helpful, so I 17 want to thank you. 18 And that concludes my comments, if you 19 have any questions. 20 CHAIRMAN WILLIAMSON: All right. I'm 21 aware some of these items have been ongoing for quite a 22 period of time. Right? Good job in trying to get that 23 stuff wrapped up. 24 MR. MINER: Thank you. 25 CHAIRMAN WILLIAMSON: Commissioners, do 29 1 you have any questions or comments? 2 COMMISSIONER KRAUSE: No. 3 AGENDA ITEM NO. X 4 CHAIRMAN WILLIAMSON: All right. Let's go 5 on to No. X, the consideration of the status and 6 possible entry of orders in cases posted on the meeting 7 agenda. 8 Bob, this is your item, please. 9 MR. BIARD: Good morning, Commissioners. 10 For the record, my name is Bob Biard, General Counsel. 11 And this morning we have 11 enforcement cases. 12 At Tabs A through C under Item X are all 13 lottery retail license revocations. Tabs D through K 14 are all bingo agreed orders. These are settlements with 15 agency staff. 16 The three lottery cases, each were 17 presented at the State Office of Administrative Hearings 18 for revocation of the retailer's lottery ticket sales 19 license for failure to have sufficient funds on deposit 20 to cover electronic transfers to the Commission. 21 The staff recommends that you vote to 22 approve the order revoking the license in each of these 23 dockets in Tab A through C. I have a single mass order 24 that covers all three of those. 25 CHAIRMAN WILLIAMSON: All right. 30 1 Commissioners, do you have any questions? 2 Can we have a motion, please? 3 COMMISSIONER KRAUSE: I make a motion that 4 we adopt staff recommendation to revoke these licenses. 5 CHAIRMAN WILLIAMSON: Is there a second? 6 COMMISSIONER DELGADO: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER KRAUSE: Aye. 9 COMMISSIONER DELGADO: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 3-0. 12 And the next group, Bob. Go ahead. 13 MR. BIARD: Sure. And I'll hand you the 14 mass order for that one. 15 And next we have Tabs D through K. With 16 your permission, I can take them up together. They are 17 bingo agreed orders. But I'll be glad to go through 18 each one separately if you prefer. These cases are each 19 proposed settlements resulting from either a complaint 20 received by the Commission or an audit. Each case 21 involves various violations of the Bingo Enabling Act. 22 And the staff has entered into a settlement agreement 23 with each of the respondents. 24 The staff recommends that you vote to 25 approve each one of the agreed orders in these cases, 31 1 Tabs D through K. 2 CHAIRMAN WILLIAMSON: All right. And just 3 for the record, I do have a witness affirmation form 4 from Marney McCormick on Item D. And she's available 5 for questions but doesn't have any desire to speak. 6 COMMISSIONER DELGADO: I'm sorry. Did you 7 say E? 8 CHAIRMAN WILLIAMSON: D. 9 So, Commissioners, do you have any 10 questions on any of these orders? 11 COMMISSIONER KRAUSE: No, ma'am. 12 CHAIRMAN WILLIAMSON: Do I hear a motion? 13 COMMISSIONER KRAUSE: I make a motion that 14 we authorize the proposed settlements reached by the 15 staff in the cases designated as Items D through K under 16 Item X on the agenda. 17 COMMISSIONER DELGADO: Second. 18 CHAIRMAN WILLIAMSON: All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 COMMISSIONER DELGADO: Aye. 22 CHAIRMAN WILLIAMSON: Motion passes 3-0. 23 MR. BIARD: Thank you, Commissioners. I 24 have eight orders for you to sign. 25 CHAIRMAN WILLIAMSON: Great. 32 1 AGENDA ITEM NO. XI 2 CHAIRMAN WILLIAMSON: The next item is 3 public comment and we have none. 4 AGENDA ITEM NO. XII 5 CHAIRMAN WILLIAMSON: At this time I move 6 the Texas Lottery Commission go into executive session 7 to deliberate the duties and evaluation of the Executive 8 Director, Internal Audit Director and Acting Charitable 9 Bingo Operations Director and to deliberate the duties 10 of the General Counsel and Human Resources Director, 11 pursuant to Section 551.074 of the Texas Government 12 Code, to deliberate the duties, appointment and/or 13 employment of Charitable Bingo Operations Director, 14 pursuant to Section 551.074 of the Texas Government Code 15 and to receive legal advice regarding any pending or 16 contemplated litigation pursuant to Section 17 551.071(1)(A) and to receive legal advice regarding 18 settlement offers pursuant to Section 551.071(1)(B) of 19 the Texas Government Code and to receive legal advice 20 pursuant to Section 551.071(2) of the Texas Government 21 Code, including but not limited to those items posted on 22 the open meetings notice for purposes of receiving legal 23 advice. 24 Is there a second? 25 COMMISSIONER KRAUSE: I second. 33 1 CHAIRMAN WILLIAMSON: All in favor? 2 COMMISSIONER KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 COMMISSIONER DELGADO: Aye. 5 CHAIRMAN WILLIAMSON: The vote is 3-0. 6 The Texas Lottery Commission will go into executive 7 session. The time is 10:35 a.m. Today is September 20, 8 2012. 9 (Off the record for executive session: 10 10:35 a.m. to 11:08 a.m.) 11 AGENDA ITEM NO. XIII 12 CHAIRMAN WILLIAMSON: The Texas Lottery 13 Commission is out of executive session. The time is 14 11:08 a.m., and there is no action to be taken as a 15 result of executive session. 16 AGENDA ITEM NO. XIV 17 CHAIRMAN WILLIAMSON: So at this time, is 18 there a motion to adjourn? 19 COMMISSIONER KRAUSE: Move. 20 CHAIRMAN WILLIAMSON: Is there a second? 21 COMMISSIONER DELGADO: Second. 22 CHAIRMAN WILLIAMSON: All in favor? 23 COMMISSIONER DELGADO: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 COMMISSIONER KRAUSE: Aye. 34 1 CHAIRMAN WILLIAMSON: Motion passes 3-0. 2 (Commission meeting adjourned: 11:09 a.m.) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 35 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 28th day of September 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 1016 La Posada Drive, Suite 294 Austin, TX 78752 22 512.474.2233 23 24 Job No. 103832 25