1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 7 TUESDAY, AUGUST 21, 2012 § 8 9 10 COMMISSION MEETING 11 TUESDAY, AUGUST 21, 2012 12 13 14 15 16 BE IT REMEMBERED THAT on Tuesday, the 21st day 17 of August 2012, the Texas Lottery Commission meeting was 18 held from 10:08 a.m. to 12:08 p.m., at the offices of 19 the Texas Lottery Commission, 611 East 6th Street, 20 Austin, Texas 78701, before CHAIRMAN MARY ANN 21 WILLIAMSON, and COMMISSIONERS J. WINSTON KRAUSE and 22 CYNTHIA TAUSS DELGADO. The following proceedings were 23 reported via machine shorthand by Lorrie A. Schnoor, a 24 Certified Shorthand Reporter, Registered Merit Reporter, 25 and Texas Certified Realtime Reporter. 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONERS: Mr. J. Winston Krause 5 Ms. Cynthia Tauss Delgado 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: 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, TUESDAY, AUGUST 21, 2012.............. 8 4 AGENDA ITEM I - Meeting Called to Order............ 8 5 AGENDA ITEM 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......................... 17 8 AGENDA ITEM III - Report, possible discussion and/or action on transfers to the State and the 9 agency’s budget status............................. 29 10 AGENDA ITEM IV - Report, possible discussion and/or action on FY13 Operating Budget............. 30 11 AGENDA ITEM V - Report, possible discussion and/or 12 action on the agency’s Legislative Appropriations Request for the 2014-2015 biennium................. 32 13 AGENDA ITEM VI - Report, possible discussion 14 and/or action on the 82nd Legislature.............. 40 15 AGENDA ITEM VII - Report, possible discussion and/or action on agency social media............... 42 16 AGENDA ITEM VIII - Consideration of and possible 17 discussion and/or action, including adoption, on amendments to 16 TAC §401.152 Application for 18 License............................................ 45 19 AGENDA ITEM IX - Consideration of and possible discussion and/or action on external and internal 20 audits and/or reviews relating to the Texas Lottery Commission, and/or on the Internal Audit 21 Department’s activities............................ 47 22 AGENDA ITEM X - Report, possible discussion and/or action, including amendments, on the instant ticket 23 testing services contract.......................... 48 24 AGENDA ITEM XI - Report, possible discussion and/or action on GTECH Corporation........................ 49 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM XII - Report by the Executive Director and/or possible discussion and/or action on the 4 agency’s operational status, agency procedures, awards, and FTE status............................. 50 5 AGENDA ITEM XIII - Consideration of and possible 6 discussion and/or action, including adoption, of amendments to 16 TAC §402.100 relating to 7 Definitions........................................ 52 8 AGENDA ITEM XIV - Consideration of and possible discussion and/or action, including adoption, of 9 amendments to 16 TAC §402.103 related to Training Program............................................ 52 10 AGENDA ITEM XV - Consideration of and possible 11 discussion and/or action, including adoption, of amendments to 16 TAC §402.200 relating to General 12 Restrictions on the Conduct of Bingo............... 52 13 AGENDA ITEM XVI - Consideration of and possible discussion and/or action, including adoption, of 14 amendments to 16 TAC §402.202 relating to Transfer of Funds........................................... 52 15 AGENDA ITEM XVII - Consideration of and possible 16 discussion and/or action, including adoption, of amendments to 16 TAC §402.203 relating to Unit 17 Accounting......................................... 52 18 AGENDA ITEM XVIII - Consideration of and possible discussion and/or action, including adoption, of 19 amendments to 16 TAC §402.204 relating to Prohibited Price Fixing............................ 52 20 AGENDA ITEM XIX - Consideration of and possible 21 discussion and/or action, including adoption, of amendments to 16 TAC §402.205 relating to Unit 22 Agreements......................................... 52 23 AGENDA ITEM XX - Consideration of and possible discussion and/or action, including adoption, of 24 amendments to 16 TAC §402.600 relating to Bingo Reports and Payments............................... 52 25 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM XXI - Report by the Charitable Bingo Operations Director and possible discussion and/or 4 action on the Charitable Bingo Operations Division’s activities, including updates on 5 licensing, accounting and audit activities, pull-tab review, special projects, and upcoming 6 operator training.................................. 55 7 AGENDA ITEM XXII - Consideration of the status and possible entry of orders in: 8 A. Docket No. 362-12-5201 – Quick Pik Stop B. Docket No. 362-12-5202 – Zip and Food Store 9 C. Docket No. 362-12-5200 – Signature Mart #2 D. Docket No. 362-12-5988 – MJ’s Food Mart 10 E. Docket No. 362-12-5718 – MJ Food Mart F. Docket No. 362-12-5719 – Quality Retail 11 Services, Inc. G. Docket No. 362-12-5519 – Rizwanur Rahman 12 H. Docket No. 362-12-5523 – Step In Food I. Docket No. 362-12-6247 – Sunny Food Store 13 J. Docket No. 362-12-5203 – El Azteca Market K. Docket No. 362-12-6652 – AZ Mark 14 L. Docket No. 362-12-6653 – El Amigo Meat Market Frisco 15 M. Case No. 2011-1018 – ATA Bexar County Line Volunteer Fire Department 16 N. Case No. 2012-586 – VFW Post 8919 Yucca O. Case No. 2012-778 –VFW Post 9190 17 P. Case No. 2012-321 – Lulac Council 12 Laredo Q. Case No. 2012-325 – Red Men Tribe 28 18 Tomahawk R. Case No. 2012-324 – Red Men Council 16 19 Redwing S. Case No. 2012-323 – Laredo Evening 20 Lions Club T. Case No. 2012-322 – Laredo Migrant 21 Council Inc................................ 57 22 AGENDA ITEM XXIII - Public comment................. 60 23 24 25 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM XXIV - Commission may meet in Executive Session: 4 A. To deliberate the duties and evaluation of the Executive Director pursuant to 5 Section 551.074 of the Texas Government Code 6 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 7 to Section 551.074 of the Texas Government Code 8 C. To deliberate the duties, appointment, and/or employment of the Charitable Bingo 9 Operations Director pursuant to Section 551.074 of the Texas Government 10 Code D. To deliberate the duties, appointment, 11 and/or employment of an Acting Charitable Bingo Operations Director pursuant to 12 Section 551.074 of the Texas Government Code 13 E. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 14 the Texas Government Code F. To deliberate the duties of the Human 15 Resources Director pursuant to Section 551.074 of the Texas Government 16 Code G. To receive legal advice regarding pending 17 or contemplated litigation pursuant to Section 551.071 (1) (A) and/or to receive 18 legal advice regarding settlement offers pursuant to Section 551.071 (1) (B) of 19 the Texas Government Code and/or to receive legal advice pursuant to 20 Section 551.071 (2) of the Texas Government Code, including but not 21 limited to: Department of Texas, Veterans of 22 Foreign Wars et al. v. Texas Lottery Commission et al. 23 Willis Willis v. Texas Lottery Commission, GTECH Corporation, BJN Sons Corporation 24 d/b/a Lucky Food Store #2, Barkat N. Jiwani and Pankaj Joshi 25 7 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 Employment law, personnel law, procurement and contract law, evidentiary 4 and procedural law, and general government law........................... 60 5 AGENDA ITEM XXV - Return to open session for 6 further deliberation and possible action on any matter discussed in Executive Session.............. 62 7 AGENDA ITEM XXVI - Consideration of and possible 8 discussion and/or action on a request pursuant to the 2012-2013 General Appropriations Act, 9 Article IX, Section 3.05........................... 62 10 AGENDA ITEM XXVII - Adjournment.................... 64 11 REPORTER'S CERTIFICATE ............................ 65 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 1 P R O C E E D I N G S 2 TUESDAY, AUGUST 21, 2012 3 (10:08 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. Good 6 morning. I'd like to call the meeting of the Texas 7 Lottery Commission to order. Today is August the 21st, 8 2012. Time is 10:08 a.m. Commissioners Krause and 9 Delgado are present, so we have a quorum. 10 Before we start on our agenda item today, 11 we would like to recognize two employees who are 12 retiring this year. And we will sorely miss them. 13 So the first one I'd like to talk about 14 and recognize is Kim Kiplin. Kim has dedicated 25 years 15 of her professional career to state government. She has 16 been the general counsel of the Texas Lottery for the 17 last 19 years as the -- and is the only general counsel 18 the lottery has ever had. She also served as acting 19 Executive Director from February the 4th of 1997 through 20 June the 9th of 1997. 21 Kim has been instrumental over the years 22 in not only providing outstanding legal services and 23 counsel to the Texas Lottery, but she has also 24 participated in several major U.S. lottery industry 25 initiatives. Before joining the Lottery as general 9 1 counsel in 1993, she was a director of legal and 2 compliance at the Texas Department of Insurance. She 3 has also served as a hearings examiner at the Texas 4 Railroad Commission. 5 She will be retiring from state government 6 at the end of this month and will be pursuing a new 7 endeavor in the private sector. She will be sorely 8 missed by all of us. I know as a commissioner, she has 9 taken care of me on many occasions and has wisely 10 advised me of things that I can and cannot do, and for 11 that, I'm most appreciative. 12 (Laughter) 13 CHAIRMAN WILLIAMSON: The Commission and 14 the staff, Kim, would like to congratulate you on your 15 25 years of service and wish you all the best. 16 At this time, what we would like to do -- 17 actually, first, commissioners, would either of you like 18 to say anything or share a comment to Kim or about Kim? 19 COMMISSIONER KRAUSE: Absolutely. 20 (Laughter) 21 COMMISSIONER KRAUSE: As a practicing 22 attorney, I have appreciated what you've done for the 23 Commission and the help you've given me as a 24 commissioner. And so I have a lot of respect for what 25 you do, and I know that you're going to be successful in 10 1 what you're about to do. 2 COMMISSIONER DELGADO: Well, I've been 3 here a short time, so I haven't been here 25 years in 4 state government. But I appreciate Kim so much because 5 every time we've needed anything, she's there; and she 6 keeps me going on the right path, tells me what I can 7 and can't do, same as with Mary Ann. So I really hate 8 to see her leave, but I understand why. 9 CHAIRMAN WILLIAMSON: And I also know that 10 there's another gentleman that would like to share some 11 words about Kim. 12 MR. BRESNEN: Can I do them both at once 13 now? 14 Well, I think it's -- Mr. Fenoglio make it 15 yet? I guess not. 16 I think it's -- won't be too presumptuous 17 of me if I speak for the two Steves today. 18 It's obvious to everybody that you've been 19 the backbone here through all the changes over the 20 years. A lot of people, when we first started -- when I 21 first started working with this agency, it was brand 22 new. A lot of folks there that allowed us to speak 23 occasionally but didn't listen very well. I think those 24 days are well past us, largely because of your efforts. 25 Not a better lawyer in state government, 11 1 for sure. Not a better lawyer in Austin -- no offense 2 to Commissioner Krause. 3 (Laughter) 4 MR. BRESNEN: But as somebody who gets 5 paid to make arguments and stretch the limits and 6 complain a lot, I think you always accept it in the 7 spirit of professionalism. And I think I can say on 8 behalf of Steve and myself, thank you very much. 9 I'm a little incensed that people as young 10 as you are retiring. 11 (Laughter) 12 MR. BRESNEN: I guess that makes me even 13 younger since I don't see retirement in site. So 14 that -- for that, I thank you. 15 Seriously, good luck. I'm sure our paths 16 will cross many times again. Thank you. 17 CHAIRMAN WILLIAMSON: All right. Now, at 18 this time, what we would like to do is present you with 19 a flag -- a state flag that Senator Watson's office 20 provided us as flown over the state capitol in honor of 21 your service and retirement, and what I'd like to do is 22 take a picture in the front. 23 And, Commissioners, I'd like for you to 24 join us. 25 (Pause) 12 1 MS. TREVINO: That's very color 2 coordinated. 3 (Laughter) 4 (Picture taken) 5 MS. KIPLIN: I appreciate this. 6 Well, thank you-all very much. 7 (Applause) 8 CHAIRMAN WILLIAMSON: Well, now, 9 unfortunately for us, we also have another person that 10 is retiring, Phil Sanderson, our director of bingo. 11 Phil has dedicated over 31 years of his 12 professional career to state government. Phil's state 13 service began when he was an auditor for the Texas 14 Alcoholic Beverage Commission from 1981 to 1994. He was 15 first hired at the Lottery Commission as the bingo audit 16 manager in the Houston regional office in 1994. He 17 later served as senior audit manager from 1995 to 1998 18 and was assistant director from 1998 to 2007. Phil was 19 then appointed by this commission as director of the 20 Charitable Bingo Operations Division on May 16th, 2007. 21 Phil has recently served as president of the North 22 American Gaming Regulators Association, NAGRA, and has 23 also served in other key leadership opportunities in 24 this association. 25 And I had the honor of introducing him 13 1 at -- and speaking to his group back in May, I believe 2 it was. Wasn't it? When you had your conference here? 3 MR. SANDERSON: The end of June. 4 CHAIRMAN WILLIAMSON: End of June. 5 And he is highly, highly thought of within 6 his industry and has a great deal of respect from his 7 peers in that industry. 8 Phil has been a steady and valuable 9 constant in the agency's bingo division. He has 10 balanced being a state regulator while fostering a 11 working relationship with the bingo industry. 12 After 31 years of dedicated service to the 13 state, Phil will be -- also be retiring at the end of 14 this month. 15 Phil, we certainly appreciate all of your 16 tireless dedication to the industry and to the Lottery 17 Commission. We are so grateful for your hard work and 18 your service, and I know that it's certainly in -- 19 recently has been even more trying because of the budget 20 cuts and the reductions that you've had to do in your 21 staff. 22 On behalf of the Commission and the agency 23 staff, congratulations on your 31 years of service, and 24 we wish you all the best. 25 Commissioners, do you have any other 14 1 comments you'd like to add? 2 COMMISSIONER KRAUSE: Yes. 3 Phil, it's been kind of tough the last 4 couple years, and I really admire the way that you've 5 handled it. You know, you've been -- had challenges, 6 you know, with the industry that we're regulating as 7 well as with the legislature and the way that they've 8 handled our budget. And so I think that you've brought 9 ingenuity and resourcefulness, too, to those. 10 And thank you for what you've done for us. 11 MR. SANDERSON: Thank you. 12 COMMISSIONER DELGADO: I really feel like 13 I'm running people off or something. 14 (Laughter) 15 COMMISSIONER DELGADO: I'm sorry. 16 I -- you know, again, it's been a short 17 time for me, but I appreciate Phil's efforts to bring me 18 up to speed. Again, he's always been available with 19 every phone call, has spent time with me, helping me 20 understand his bingo division. And so, again, I 21 appreciate it and, obviously, will hope to see you 22 somewhere around. 23 MR. SANDERSON: Thank you. 24 CHAIRMAN WILLIAMSON: All right. And I 25 believe Mr. Bresnen also has comments for Phil. 15 1 MR. BRESNEN: I want to repeat something 2 that I said. So whatever happens going forward, I'm 3 hoping that there will be momentum for what you've 4 created here; and that is, there was a time when we were 5 allowed to speak in formal processes, but there really 6 wasn't much listening going on. And I think more than 7 anything, what you did was establish an environment 8 where when people talked, they were actually listened 9 to. 10 I think what you've said about the 11 legislature, the way the legislature has treated the 12 bingo division, is a travesty, and there are people in 13 the room here today that I'm hoping will hear what I'm 14 saying. You -- this agency has to have more resources 15 than you've had in order to do its job. And we've 16 all -- I think we've always recognized that, even though 17 we didn't want to pay any more personally to fund it. 18 One thing that I think needs to be said -- 19 and I think this is true of Kim, I think it's true of 20 the commissioners -- of these commissioners and the 21 commissioners that we've had in recent years -- is that 22 the legislature has a great deal of respect and trust in 23 this agency. And I know that when I go talk to members, 24 they want to know what you think; and that's very, very 25 important because we trust you. And if we're talking to 16 1 them and they trust you, then the opportunity to advance 2 the ball is so much, much better than if the natural 3 tension between a regulated community and a regulator is 4 the dominant aspect of the relationship. 5 And while it exists and you've had to 6 punish some people from time to time and hold their feet 7 to the fire, I personally don't know of anybody during 8 your tenure that felt like they were -- you were after 9 them or were treated unfairly, that you didn't treat 10 them with respect, even when you had to be tough with 11 them. So I think that's a really, really important 12 thing. 13 And your professionalism is very, very 14 much appreciated by everybody that I know in bingo. 15 Thanks very much and God speed. 16 MR. SANDERSON: Thank you. 17 (Applause) 18 CHAIRMAN WILLIAMSON: And, Phil, we want 19 your picture as well because we have a flag for you from 20 Kirk Watson's office that was flown over the capitol in 21 honor of your service. 22 (Pause) 23 MR. SANDERSON: A little color. 24 CHAIRMAN WILLIAMSON: That's right. 25 MR. SANDERSON: Thank you. 17 1 (Picture taken) 2 (Applause) 3 AGENDA ITEM NO. II 4 CHAIRMAN WILLIAMSON: Okay. We will go on 5 with Item No. II. It's the report, possible discussion 6 and/or action on lottery sales and revenue, game 7 performance, new game opportunities, advertising, market 8 research, trends, and game contracts, agreements, and 9 procedures. 10 Kathy and Robert, please, this is your 11 item. 12 MS. PYKA: Good morning, Commissioners. 13 My name is Kathy Pyka. I'm the controller for the 14 Commission. With me to my right is Robert Tirloni, our 15 products manager. 16 Our first chart this morning reflects 17 comparative sales through the week ending August 18th, 18 2012. Our total fiscal year 2012 sales through this 19 51-week period are $4,006,000,000, an increase of 20 $346 million compared to the 3 billion seven hundred -- 21 3.71 billion in sales for the same period last fiscal 22 year. 23 Commissioners, with one-and-a-half week 24 remaining in the fiscal year, we've already exceeded our 25 previous commission sales record that occurred in fiscal 18 1 year 2011, in which we reached 3.81 billion in sales, 2 and we've now exceeded this record by $244 million. 3 Our fiscal year 2012 instant ticket sales 4 reflected on the second blue bar are $2.983 billion, 5 which is a $217 million increase over the sales figure 6 for fiscal year 2011. We continue to experience year 7 over year weekly sales growth in the instant ticket 8 product. Our sales for the week ending August the 11th 9 were $57.8 million, which was our highest instant ticket 10 sales week in the month of August in the Commission's 11 history. And that exceeded the previous year over year 12 sales of 6.9 million for that particular week. 13 Our fiscal year 2012 draw sales reflected 14 on the second red bar are at a billion, $72 million, and 15 that's a $128 million increase over the $943 million 16 figure for last fiscal year. Our total draw sales for 17 last week were $25.4 million, and this is when our 18 jackpot for Powerball had reached 320 million. 19 Commissioners, this was our fourth highest 20 week of draw sales for the fiscal year, exceeding the 21 previous year by $8 million. And a particular note, our 22 Powerball draw sales for Wednesday were $5.9 million, 23 and that reflected our highest day of Powerball sales 24 since we began selling Powerball in 2010. 25 Our next slide reflects the cumulative 19 1 average daily sales figures for fiscal years 2010, 2 fiscal year 2011, as well as fiscal year 2012. The 3 overall daily average sales value for fiscal year 2012 4 is $11.5 million. This is a million-dollar-per-day 5 increase over the previous two fiscal years. 6 CHAIRMAN WILLIAMSON: Okay. Could you 7 repeat that for me, please, real loud? 8 MS. PYKA: Yes, ma'am. 9 Our daily average for fiscal year 2012 10 reflects a full million dollars per day sales increase 11 over the previous two fiscal years. 12 CHAIRMAN WILLIAMSON: Okay. 13 COMMISSIONER KRAUSE: My goodness. 14 MS. PYKA: We'll move up to our jackpot 15 games highlighted in the white font. We're at 16 $1.89 million for fiscal year 2012. This is a $346,000 17 increase over last fiscal year and $159,000 increase 18 over fiscal year 2010. 19 Special note, we'd like to focus on the 20 multistate draw games with Mega Millions following our 21 $640 million jackpot that we had earlier this year in 22 March. It's reflecting a 19 percent increase over prior 23 fiscal year sales. In Powerball, which is at $476,000 24 per day, reflects a 72 percent increase over fiscal year 25 2011. And, Commissioners, this is following the 20 1 introduction of the $2 Powerball game as well as our 2 most recent jackpot roll that we had that reached up to 3 $320 million. 4 So, again, we introduced the $2 Powerball 5 product in January of this fiscal year and -- as well as 6 having that high jackpot roll, and we're looking at a 7 72 percent sales growth over the previous fiscal year. 8 We'll move on down to our daily games, 9 which reflect just over 1.1 million as their daily sales 10 average. Slight increase over the previous fiscal year 11 as well as a 4.4 percent increase over fiscal year 2010. 12 And within this group, we'd like to highlight the 13 Daily 4 game at $186,000 per day. This is an increase 14 of 16 percent over fiscal year 2011 and a 28 percent 15 sales increase over fiscal year 2010. 16 Moving down to the bottom of the chart, 17 we've got our instant ticket sales with the daily 18 average sales value of 8.45 million per day, an increase 19 of 638,000 over the previous fiscal year and an increase 20 of $860,000 over fiscal year 2010. 21 So, again, wrapping up, we're at 22 $11.488 million as a daily sales average for fiscal year 23 2012, which, again, is over a million-dollars-per-day 24 increase over the prior fiscal years. 25 So with that, Robert will now move on to, 21 1 actually, sales by game. 2 MR. TIRLONI: For the record, my name is 3 Robert Tirloni, products manager for the Commission. 4 So, this slide is through the week ending 5 8/18, which was just this past Saturday. The white font 6 at the top are the draw game jackpot games, and we're 7 seeing overall an increase of $120.6 million in fiscal 8 '12 compared to fiscal '11. The only game that's in 9 slight decline is Lotto Texas at $2.2 million. But as 10 Kathy mentioned, we've experienced large gains from the 11 two multistate product offerings, Mega Millions and 12 Powerball, with Powerball up just over $70 million in 13 fiscal year '12. 14 The green in the middle of the slide are 15 the daily games. Almost every game is experiencing 16 growth except Pick 3. Again, we're seeing a slight 17 decline of $2 million on Pick 3. But we are seeing 18 large gains from our other daily game -- our daily 19 numbers game, which is Daily 4, and that game is 20 realizing an 8.9 percent increase. We believe those are 21 Pick 3 players that have migrated over to Daily 4. So 22 as a whole, the daily draw games are up $8 million this 23 fiscal year. 24 When you combine all of our draw games 25 together, we're up just under $129 million this fiscal 22 1 year. And we are experiencing a very, very strong 2 instant ticket sales year this fiscal year. Our sales 3 are up $217-and-a-half million in fiscal year '12. All 4 of that combined brings us over the $4 billion mark for 5 fiscal '12 and realizes a $346 million gain in '12 6 versus '11. 7 I have some products update for you-all 8 today. I've given you a sample of our newest $20 9 spotlight game, $500 million Extreme Cash Blast. Sales 10 started just a little over a week ago, on Monday the 11 13th. You might recall, this is our second spotlight 12 game that we've launched this year. We launched a $10 13 spotlight game, $200 million Cash Spectacular, back in 14 the spring; and so now this is our $20 spotlight game 15 for this fiscal. 16 This game is receiving full advertising 17 support. It's got in-store point-of-sale. You might 18 have seen some of our outdoor billboards for this game, 19 TV, radio; and, of course, it's being supported in-store 20 on the advertising displays, the ESMM displays. 21 So this game, like I said, has just been 22 out for about a week, but we have had great success with 23 these spotlight games in the past, and we believe we're 24 going to have great success with this $20 introduction 25 as well. 23 1 Just a reminder, in the next few weeks, 2 we're excited about the launch of our brand-new draw 3 game, All or Nothing. Sales start on Sunday, 4 September 9th; and then the very first drawing will be 5 on Monday, September 10th. This game brings with it two 6 new drawings. It'll be drawn four times a day, but it 7 has two new drawing times that we've never had before, a 8 10 a.m. and a 6 p.m. And then it will be drawn during 9 our day draw at 12:27. That's when Pick 3 and Daily 4 10 are already drawn; and, again, it'll be drawn at 10:12 11 at night when Pick 3 and Daily 4 are drawn. 12 There are two different ways to win the 13 top prize. You can match all 12 numbers and win the top 14 prize. You can match zero, or none of the numbers, and 15 win the top prize. 16 So this game has been very well received 17 by our retailer base. We have been going out and 18 talking to them about it. And the drawing schedule and 19 the way the game plays are -- the initial reaction is 20 that it's going to very popular. So we're excited about 21 this. It has great overall odds. And this game, too, 22 will receive full advertising support starting in 23 September. 24 So, really, wrapping up the end of the 25 fiscal year with Extreme Cash Blast, moving into the All 24 1 or Nothing launch, followed by the holiday suite of 2 games, we have a busy -- we have a busy Fall ahead, 3 which will hopefully continue the great sales success 4 that we've seen in fiscal '12. 5 And last but not least, I have an award to 6 tell you-all about. We have received a POPAI 7 Outstanding Merchandising Achievement Award. And I know 8 POPAI may not mean much to you, so I'll tell you what it 9 is. 10 POPAI stands for the Point of Purchase 11 Advertising International. They are an international 12 trade association for the marketing at retail industry. 13 They were founded in 1936. They celebrated their 75th 14 anniversary in 2011, and they have over 1700 member 15 companies. Their board of directors is made up of 16 representatives from well-known industry leading 17 companies, including Target; PepsiCo; Nestle; Walmart; 18 7-Eleven; Coca-Cola; NACS, which is the National 19 Association of Convenience Stores; Walt Disney Studios 20 Entertainment. They are -- also have representation 21 from advertising agencies and from manufacturers that 22 actually manufacture point-of-purchase equipment, such 23 as the playstation. 24 The Outstanding Merchandising Achievement 25 Award is the premier award for recognizing the most 25 1 innovative and effective in-store at retail displays 2 that lift sales and make products memorable to 3 consumers. And entries compete for gold, silver, and 4 bronze honors; and so we received the bronze Outstanding 5 Merchandising Achievement Award in the discipline of 6 permanent displays within the convenience store retailer 7 category. 8 And so we're really proud of this award. 9 We worked very closely with GTECH Texas during the 10 lottery operator conversion process on the design of 11 this playstation. And GTECH contracted with the process 12 retail group. That's the manufacturer that actually 13 helped us with the specifications and then actually 14 manufactured the playstation. And it's -- besides the 15 picture, we have one on display behind me. We're really 16 happy about the way those look. They give us a really 17 good, strong brand presence in the very crowded retail 18 environment. 19 So we're proud of the work we've done on 20 that, and we're proud to have received this award as 21 well to recognize that. 22 CHAIRMAN WILLIAMSON: Good. 23 Congratulations. How many retail locations have this 24 now? Do you know? 25 MR. TIRLONI: We have -- we have two 26 1 different versions of the playstation. This is called 2 the Nex Gen playstation. We have a smaller footprint 3 one that we call the low profile that actually doesn't 4 have a compartment at the bottom. It has shelves for 5 newspapers. I believe the majority of the retailers 6 have this -- have this one, though. 7 And I believe we got pretty full placement 8 at almost all our retail locations. There are certain 9 corporate chains that don't allow playstations. Some of 10 them build in their own, like, play center for players, 11 but the majority of our retailers have either accepted 12 this or the smaller profile one. So we've got very good 13 placement of these at retail. 14 CHAIRMAN WILLIAMSON: Good. And 15 congratulations on your sales. I know keeping an 16 interest in our scratch-off games is always a challenge, 17 and so I commend your group and the GTECH group that 18 puts together the new ideas for all of the various 19 scratch-off tickets. And -- 20 MR. TIRLONI: Thank you very much. 21 CHAIRMAN WILLIAMSON: -- y'all have done a 22 commendable job. 23 Commissioners, do you have any questions 24 or comments? 25 COMMISSIONER KRAUSE: Well, I've got a 27 1 comment and a question. 2 And so anyway, I believe that our growth, 3 you know, not discounting the new products and the great 4 new games and not discounting, you know, the huge 5 jackpots that we've had two of this year, I think it 6 also reflects the intelligence of our customers because, 7 you know, there is criticism about, you know, this is an 8 unfair tax, et cetera, et cetera. I maintain that this 9 is entertainment. It's an entertainment product; and, 10 therefore, what this reflects is that our customers are 11 becoming more prosperous, and they are using 12 intelligence to -- with their entertainment dollars. So 13 that's my comment. 14 My question is that, you know, when we 15 introduced the Powerball, then Lotto Texas had a fairly 16 big drop. It seems to have leveled off, but it's still 17 declining. And so, anyway, is there any discussion in 18 the -- amongst the staff about maybe redirecting efforts 19 toward Lotto Texas so that we continue the robust growth 20 that we have both in Powerball and Mega Millions but 21 maybe bring a little bit more awareness, or is that 22 something that's not desirable? 23 MR. TIRLONI: Yes, sir. We are actually 24 right now starting to talk with GTECH about some future 25 options for Lotto, some add-on game options that we can 28 1 also consider. We're kind of at the initial stages of 2 that right now. And in the next few months, I expect 3 that we'll have some more information to share with you. 4 But we are definitely looking at that 5 product so that we can make it more competitive with the 6 multistate games that we have in the portfolio. 7 COMMISSIONER KRAUSE: Because that's 8 proprietary, are the economics to us different than the 9 multistate? 10 MR. TIRLONI: I'm not sure I under -- 11 MR. GRIEF: Let me take that one. 12 No, sir, they're not. 13 COMMISSIONER KRAUSE: Okay. 14 MR. GRIEF: And I assume you're meaning do 15 we make just as much money on -- 16 COMMISSIONER KRAUSE: Yes. 17 MR. GRIEF: -- multistate games? And 18 that's correct. 19 COMMISSIONER KRAUSE: All right. 20 MR. GRIEF: It's all the same. 21 COMMISSIONER KRAUSE: Okay. 22 CHAIRMAN WILLIAMSON: Thank you, 23 Commissioners. 24 Thank you. 25 29 1 AGENDA ITEM NO. III 2 CHAIRMAN WILLIAMSON: Let's go on to next 3 item. It's report, possible discussion and/or action on 4 transfers to the State and the agency's budget status. 5 Kathy. 6 MS. PYKA: Again, thank you. 7 For the record, my name is Kathy Pyka, 8 controller for the Texas Lottery Commission. 9 Commissioners, while your notebook 10 includes revenue data through the period of June, I'd 11 like to proceed with updating you on the revenue 12 transfer that we did through the period ending 13 July 31st, as we completed that transfer last week. 14 Following that transfer, our total cash 15 transfer this date now amount to $1,053,000,000 through 16 the 11th month of the fiscal year 2012. Of the total 17 transfer to the state, $1,007,000,000 was the amount 18 transferred to the Foundation School Fund, $4.5 million 19 was transferred to the Texas Veterans' Commission with a 20 balance of 41.8 million transferred to general revenue 21 from unclaimed lottery prizes. 22 Commissioners, this represents a 23 15.8 percent increase or $137 million over the amount 24 transferred to the Foundation School Fund through July 25 of 2011. With one month still remaining in the fiscal 30 1 year, we've already exceeded our total revenue transfers 2 for fiscal year 2011. Our total cumulative transfers to 3 the Foundation School Fund through July of this year now 4 total $14.6 billion. So that's our revenue update. 5 And then I'd like to also provide you an 6 update on our Commission's operating budget through the 7 second quarter ending -- or excuse me -- through the 8 third quarter ending May 31, 2012. 9 Our lottery account budget for that 10 quarter was $191.6 million, and of that amount, 11 84.4 percent was expended and encumbered through the end 12 of the third quarter. And our bingo operations budget 13 funded by general revenue was $14.7 million with almost 14 78 percent expended encumbered through the end of the 15 third quarter. 16 I'd be happy to answer any questions. 17 CHAIRMAN WILLIAMSON: Thank you. 18 Commissioners, do you have any questions? 19 COMMISSIONER KRAUSE: No. 20 CHAIRMAN WILLIAMSON: Okay. Thank you. 21 MS. PYKA: Thank you. 22 AGENDA ITEM NO. IV 23 CHAIRMAN WILLIAMSON: Let's go on to next 24 item. It is report, possible discussion and/or action 25 on Fiscal Year 2013 Operating Budget. 31 1 Kathy. 2 MS. PYKA: Thank you. 3 Commissioners, this morning I'm seeking 4 your approval of the Fiscal Year 2013 Operating Budget 5 in the amount of $209,871,882 and 315.5 full-time 6 equivalent positions. 7 The budget was developed in accordance 8 with the appropriation amount outlined in House Bill 1, 9 adjusted for the rider and Article 9 funding provisions. 10 The initial draft of the budget was developed by the 11 Office of the Controller and delivered to division 12 management for their direct input, and the final draft 13 was developed after receiving their feedback and final 14 review by executive management. 15 I'd be happy to answer any questions. 16 CHAIRMAN WILLIAMSON: Thank you. 17 Commissioners, do you have any questions 18 on the budget? 19 (No response) 20 CHAIRMAN WILLIAMSON: All right. And I 21 believe this is an action item. Correct? 22 MS. KIPLIN: It's an action item. 23 CHAIRMAN WILLIAMSON: Is there a motion to 24 approve the budget? 25 COMMISSIONER KRAUSE: I make a motion that 32 1 we adopt the proposed Fiscal Year 2013 Operating Budget 2 as presented in meeting. 3 CHAIRMAN WILLIAMSON: Is there a second? 4 COMMISSIONER DELGADO: Second. 5 CHAIRMAN WILLIAMSON: All in favor? 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 COMMISSIONER DELGADO: Aye. 9 CHAIRMAN WILLIAMSON: Motion passes 3-0. 10 MS. PYKA: Thank you, Commissioners. 11 AGENDA ITEM NO. V 12 CHAIRMAN WILLIAMSON: All right. We will 13 go on to the next item. Report, possible discussion 14 and/or action on the agency's Legislative Appropriations 15 Request for the 2014-2015 biennium. 16 Kathy. 17 MS. PYKA: Commissioners, this morning I'm 18 seeking your approval of the Commission's Legislative 19 Appropriations Request for Fiscal Years 2014 and 2015. 20 The Commissioner's Fiscal Year 2014-15 LAR 21 was developed in accordance with guidelines from the 22 leadership offices which stated that each agency's 23 baseline budget request for general revenue-related 24 funds may not exceed the amount of funds expended in 25 Fiscal Year 2012 as well as budget in 2013. In 33 1 accordance with these submission guidelines, the 2 Commission's baseline request for Fiscal Years 2014 and 3 '15 is $430,575,173 and 309.5 FTEs. Commissioners, this 4 is a reduction of $1,315,010 from our Fiscal Years 5 2012-13 levels. 6 In addition to the baseline request, the 7 Commission is seeking three exceptional items in the 8 amount of $4,923,972 for an overall request of 9 $435,499,145. 10 So as noted, our LAR includes three 11 exceptional items amounting to $4.9 million. Each 12 request has been prioritized in accordance with the 13 agency's goal structure to allow us to continue our 14 regulatory and revenue-generating functions. The 15 lottery-related item allows for potential growth in 16 lottery revenue, and the two bingo-related items will 17 allow the agency to significantly enhance its regulatory 18 functions. 19 I'll now provide a summary of each of the 20 exceptional items. 21 Exceptional Item 1 in the amount of 22 $1,199,096 will provide the necessary capital and staff 23 investments for a new draw game opportunity that will be 24 introduced in Fiscal Year 2014. The introduction of 25 this new game would require the agency to procure new 34 1 drawings equipment and ball sets as well as remodel the 2 existing draw studio and add three additional staff. 3 Commissioners, it is important to note 4 that with this request, the agency would not exceed our 5 Fiscal Year 2012-13 base appropriation but only needs 6 the FTE and capital budget authority. 7 Exceptional Item 2 relates to bingo and 8 provides for the funding of 14 FTEs in the -- in the 9 amount of $612,438 in each year of the biennium. The 10 increase in general revenue appropriation would be 11 supported by fee increases to the bingo operators and 12 lessors. 13 Exceptional Item 3 is for the Automated 14 Charitable Bingo System redesign. This project in the 15 amount of $2.5 million will redesign the Automated 16 Charitable Bingo System. Since implementation, there 17 have been numerous changes to the business processes, 18 including system application changes, and the current 19 tool set used to support ACBA -- ACBS will be out of 20 support in 2013. The increase in general revenue 21 appropriation would be supported by a portion of the 22 general revenue bingo prize fee collected pursuant to 23 Texas Occupations Code, Section 2001.504, that is 24 deposited and retained by the state of Texas in general 25 revenue unappropriated. 35 1 I'd like to now move forward to our rider 2 revisions. These are reflected on Page 3B of the LAR as 3 well as Page 3 of your cover memo. They incorporate 4 revisions to the Commission's current rider structure as 5 outlined in the 2013 -- '12-'13 General Appropriations 6 Act. 7 So, Commissioners, in addition to our 8 routine revisions, we're requesting the following 9 riders: Rider 6, limitation on out-of-country and 10 out-of-state travel. We are requesting to delete this 11 rider; and if we're granted, the Commission will comply 12 with the limitation on travel expenditures outlined in 13 Article 9, Section 5.08, of the General Appropriations 14 Act. 15 We're requesting a revision to Rider 7, 16 appropriations limited to revenue collections. This 17 revision is requested to clarify the use of bingo rental 18 taxes as a source of revenue to cover the cost of 19 appropriations. 20 Rider 10, retailer revisions -- or 21 retailer commissions. Excuse me. We're requesting a 22 revision to this rider to provide for a biennial 23 appropriation and clarify the use of any unexpended 24 balances and -- including that authority between fiscal 25 years of the biennium for the sales performance retailer 36 1 commission program. 2 We're requesting the deletion of Rider 15, 3 as funding was not secured to fund ACBS system during 4 this current biennium. We're now requesting a new 5 exceptional item for this and funding the item out of 6 general revenue bingo prize fees. 7 New Rider 701 relates to capital budget, 8 and it's the request of capital budget required for 9 Exceptional Items 1 and 3, which was the new draw games 10 as well as ACBS. 11 New Rider 702 relates to appropriation to 12 reimburse the lottery dedicated fund for the cost of 13 bingo indirect costs. This is a new rider requesting to 14 transfer bingo receipts to the general revenue lottery 15 dedicated account to fund the cost of indirect support 16 provided to the bingo program from current lottery 17 proceeds. This rider is in reference to recommendation 18 4.6 of the agency's Sunset Report. 19 We also have new Rider 703, which is the 20 appropriation from local -- for local bingo prize fees. 21 In the LAR, we're requesting the deletion of Strategy 22 B15 bingo prize fee allocation and Rider 9 and to 23 account for the local prize fee activities under a new 24 rider that would appropriate prize fees by rider 25 appropriation. This rider is in reference to 37 1 Recommendation 4.1 of the agency's Sunset Report. 2 New Rider 704 is for bingo third-party 3 reimbursements. It reflects a new rider providing for 4 the Commission's authority to expend third-party 5 reimbursement fees recovered with the cost of audits and 6 inspections. New Rider 705 is appropriation contention 7 upon revenue, and this is the rider that's approve -- 8 upon approval of Exceptional Item 3 related to staffing 9 increases for the Bingo Division. Again, funding for 10 this exceptional item will be provided by fee increases 11 to the bingo operators and lessors. 12 Commissioners, I'd like to now cover the 13 10 percent reduction plan. As part of our requirement, 14 in order to assist the governor and the legislature in 15 the review of agency's budgets, the legislature -- or 16 the leadership offices are requiring agencies submit a 17 supplemental schedule in their LAR detailing how the 18 Commission's general revenue budget will be reduced by 19 an additional 10 percent. 20 Our Commission's 10 percent reduction for 21 the general revenue bingo program is $2,951,361. That's 22 essentially just 10 percent across-the-board reduction 23 from their $29.5 million appropriation. Our proposed 24 plan for this proposed $2.95 million reduction is funded 25 by general revenue, includes a staffing reduction of 25 38 1 FTEs in the bingo program. 2 Commissioners, this is consistent with LBB 3 directive that the agency fund the entire 10 percent 4 reduction from the bingo administrative strategies 5 exempting the bingo prize fee allocation from the 6 reduction. 7 Commissioners, in closing, our LAR is due 8 to leadership offices on August the 30th of this year. 9 In addition to filing hard copies of the document, 10 agencies are required to file their operating budgets 11 electronically through the LBB system as well as submit 12 a searchable .pdf version of the document. Upon 13 completion of the budget document, we'll provide 14 certification to both the LBB and the governor's office 15 that the dual systems are in sync and the fact that the 16 print copy and what we have included in their automated 17 system is one in the same. 18 Commissioners, the document that I have 19 submitted to you is the final document for our agency 20 pending your vote, and we do not have any further 21 revisions to it. So I've got the signature certificate 22 with Kim for approval, if the document should be 23 approved this morning. 24 That concludes my presentation. I'd be 25 happy to answer any questions. 39 1 CHAIRMAN WILLIAMSON: Thank you, Kathy. 2 Commissioners, do you have any questions? 3 COMMISSIONER DELGADO: No. 4 COMMISSIONER KRAUSE: I got one. 5 If we cut that many FTEs out of the bingo 6 budget, how many people are left? 7 MS. PYKA: There would be 8 FTEs remaining 8 out of the 33 current staff, if we're required to move 9 forward with that 25 FTE reduction in the 10 percent 10 baseline. 11 CHAIRMAN WILLIAMSON: Okay. Thank you. 12 I believe this is an action item. 13 COMMISSIONER KRAUSE: I make a -- 14 CHAIRMAN WILLIAMSON: Is there a motion? 15 COMMISSIONER KRAUSE: I make a motion that 16 we adopt the proposed legislative appropriations request 17 for the 2014-2015 biennium presented today. 18 COMMISSIONER DELGADO: Second. 19 CHAIRMAN WILLIAMSON: Is there a second? 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 COMMISSIONER DELGADO: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 Motion passes 3-0. 25 MS. KIPLIN: Commissioners, I have the two 40 1 documents that Kathy Pyka was referencing. 2 And, Chairman Williamson, you'll be the 3 one signing those but in your representative capacity on 4 behalf of the Commission reflecting the vote today. 5 CHAIRMAN WILLIAMSON: Okay. 6 MS. PYKA: Thank you, Commissioners. 7 CHAIRMAN WILLIAMSON: Thank you, Kathy. 8 AGENDA ITEM NO. VI 9 CHAIRMAN WILLIAMSON: Let's go on to 10 Item VI. Report, possible discussion, and/or action on 11 the 82nd Legislature. 12 Nelda. 13 MS. TREVINO: Good morning, Commissioners. 14 For the record, I'm Nelda Trevino. I'm 15 the Director of Governmental Affairs. 16 I have previously reported during the 17 legislative interim that house and senate committees 18 meet to study particular issues for the purpose of 19 making recommendations to the next legislature. The 20 Senate Committee on Veterans Affairs and Military 21 Installations will be holding its final interim hearing 22 on August the 28th in Killeen. Senator Leticia Van de 23 Putte is the chairman of this committee, and she has 24 requested Gary attend the hearing to provide testimony 25 on the veterans' ticket initiative. Specifically, she 41 1 has asked Gary to discuss sales and revenue trends of 2 the veterans' ticket initiative and the Lottery 3 Commission's advertising and promotion efforts related 4 to this initiative. 5 As a reminder, during the 2009 legislative 6 session, a bill authored by Senator Van de Putte was 7 enacted that amended the Lottery Act requiring the 8 Lottery Commission to create and market a scratch-off 9 game to benefit the Veterans Assistance Fund. While no 10 advertising dollars were appropriated for this 11 initiative, the agency has made various efforts to 12 promote the veterans' tickets. The Veterans' Assistance 13 Fund is administered by the Texas Veterans Commission; 14 and our staff, particularly Robert Tirloni and Melissa 15 Villasenor, has worked very closely with them on this 16 initiative. 17 Lastly, the Governmental Affairs staff is 18 monitoring other committee hearings, and we will provide 19 you any updates on any actions that may impact the 20 agency. 21 This concludes my report, and I'll be glad 22 to answer any questions. 23 CHAIRMAN WILLIAMSON: Thank you, Nelda. 24 Are there any questions or comments? 25 COMMISSIONER KRAUSE: No, ma'am. 42 1 COMMISSIONER DELGADO: No, ma'am. 2 CHAIRMAN WILLIAMSON: Thank you. 3 AGENDA ITEM NO. VII 4 CHAIRMAN WILLIAMSON: Go on to -- next 5 item is report, possible discussion and/or action on 6 agency social media. 7 Gary. 8 MR. GRIEF: Commissioners, on Monday, 9 August the 13th, we launched Texas Lottery sites on the 10 three most popular social media platforms, Facebook, 11 Twitter, and YouTube. These were launched without any 12 fanfare or announcement. And thus far, there have been 13 no issues reported, and all the sites are performing 14 just as we expected. 15 Through these social media outlets, we 16 hope to, obviously, increase sales and revenue; but 17 also, we hope to engage our players in a slightly 18 different manner than we have in the past and more 19 effectively provide information to the Texas Lottery -- 20 to the public who's interested in the Texas Lottery. 21 Through these mediums, we can potentially communicate 22 with some new audiences that we really haven't been able 23 to effectively connect with in the past. Most notably, 24 a more diverse group in the 18 to 49 years of age 25 sector. 43 1 Several other U.S. lotteries and Texas 2 state agencies have already entered into these spaces 3 with success; and while we're not late to the party, we 4 have taken a very methodical approach. That -- this was 5 one of the major tasks that I asked Kelly Cripe, our 6 media relations director, to take on when she joined the 7 agency about six months ago. And she, along with 8 Michael Anger, have led a very talented agency task 9 force to the sites coming up Monday a week ago. 10 We believe we can sustain an effective 11 social media presence with minimal cost to the agency by 12 using our existing staff and resources. We're following 13 the social media guidelines provided by the Department 14 of Information Resources, and we have ensured that 15 site-specific safeguards are in place on all three 16 sites, including age-gating and language filters. We're 17 going to be monitoring these sites on an ongoing basis 18 to answer questions from the public, to watch for any 19 potential violations of our social media policies or 20 procedures, and to maintain compliance with the Texas 21 Public Information Act. 22 We're very excited about the agency's 23 participation in the social media venue, and we'll keep 24 you posted as we ramp that up and we gain additional 25 followers. 44 1 That concludes my report, and I'd be happy 2 to answer any questions. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Commissioners, do you have any questions 5 or comments? 6 COMMISSIONER KRAUSE: I got one question. 7 Without any fanfare, then, was the rollout 8 detected by the public; and how do we know? 9 MR. GRIEF: Slowly. And we plan to do a 10 bigger announcement at a later date, but we decided 11 strategically to do a soft launch initially. 12 COMMISSIONER KRAUSE: Well, so, did 13 anybody pick us up right away? 14 MR. GRIEF: We have some followers 15 already. I don't have those numbers with me, but 16 definitely. Yes, sir. 17 COMMISSIONER KRAUSE: Okay. 18 COMMISSIONER DELGADO: You need to get on 19 there. I'm a follower. That's what I was going to ask, 20 is how many likes do we have so far? Do you know? 21 Anybody know? One, because I'm on there. 22 MR. GRIEF: How many? 23 FROM THE AUDIENCE: Between 50 and 60. 24 MR. GRIEF: Between 50 and 60 thus far. 25 COMMISSIONER DELGADO: That's not bad for 45 1 quiet. Are -- will you be sending -- you know, every 2 week they send that demographic update. Will you be 3 able to send that to us, the Commissioners? 4 MR. GRIEF: I'm sure we can. 5 COMMISSIONER DELGADO: Okay. 6 CHAIRMAN WILLIAMSON: Okay. Good. I 7 commend y'all for doing that. I think that's critical. 8 That's where communication is headed for all of us. 9 AGENDA ITEM NO. VIII 10 CHAIRMAN WILLIAMSON: Let's go on to the 11 next item. Consideration of and possible discussion 12 and/or action, including an adoption, on amendments to 13 16 TAC 401.152, Application for License. 14 Bob, this is your item. 15 MR. BIARD: Good morning, Commissioners. 16 I'm Bob Biard, assistant general counsel in the legal 17 services division. 18 This item is the proposed adoption of 19 amendments to the Commission's rule on lottery retailer 20 license applications, 401.152. Commission approved the 21 proposed -- publishing the proposed amendments at its 22 June meeting for public comment. 23 The purpose of the amendments is to 24 specify that the Lottery Operations Division Director 25 may cancel an application for a sales agent license if 46 1 the applicant fails to provide all the information 2 required as part of the application and shall not refund 3 the application fee. This is memorializing their 4 current policy. 5 We received no comments to the proposed 6 amendments, and staff recommends the Commission adopt 7 the amendments. 8 CHAIRMAN WILLIAMSON: Are there any 9 questions or comments? 10 (No response) 11 CHAIRMAN WILLIAMSON: Is there a motion? 12 COMMISSIONER KRAUSE: Make a motion that 13 we adopt the proposed amendments presented today to 16 14 TAC, Section 401.152. 15 CHAIRMAN WILLIAMSON: Is there a second? 16 COMMISSIONER DELGADO: Second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMMISSIONER KRAUSE: Aye. 19 COMMISSIONER DELGADO: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Motion passes 3-0. 22 MR. BIARD: Thank you. 23 CHAIRMAN WILLIAMSON: Thank you. 24 MS. KIPLIN: Commissioners, I have an 25 order on that. 47 1 CHAIRMAN WILLIAMSON: Okay. 2 AGENDA ITEM NO. IX 3 CHAIRMAN WILLIAMSON: Next item is 4 consideration of and possible discussion and/or action 5 on external and internal audits, and/or reviews relating 6 to the Texas Lottery and on the Internal Audit 7 Department's activities. 8 Catherine, that's yours, please. 9 MS. MELVIN: Good morning. Thank you, 10 Chairman. Thank you, Commissioners. 11 This morning, I'd just like to provide a 12 brief update on some external audit activities. 13 First is the financial audit, our annual 14 audit. The auditors recently completed their interim 15 work, and we expect them to be back in October or 16 November to complete their audit work. They've also 17 completed their procedures related to an agreed-upon 18 procedures engagement for the multi-state games. 19 The second external review is our Biennial 20 Security Study. That review is being performed by a 21 firm Delehanty Consulting. They have been onsite. 22 They've done some travel. They are knee deep in their 23 work right now, and they're on track to finish sometime 24 in the Fall. 25 The last external review is the state 48 1 auditor's office has completed their follow-up review of 2 an audit they conducted of the Charitable Bingo 3 Operations Division back in September 2010. I believe 4 that report was issued. They've completed their work. 5 We received a draft audit report late last week, and we 6 are scheduled to exit with them later this afternoon. 7 Commissioner Tauss, I believe, will be joining us; and I 8 believe that report will probably be issued in 9 September. 10 In addition to any internal audit 11 activity, that's all I have today. 12 CHAIRMAN WILLIAMSON: Thank you. 13 Commissioners, do you have any questions 14 or comments? 15 COMMISSIONER KRAUSE: No, ma'am. 16 COMMISSIONER DELGADO: No, ma'am. 17 CHAIRMAN WILLIAMSON: Thank you, 18 Catherine. 19 AGENDA ITEM NO. X 20 CHAIRMAN WILLIAMSON: Let's go on to the 21 next item, is report, possible discussion and/or action, 22 including amendments, on the agency's instant ticket 23 testing services. 24 Mike, this is your item, please. 25 MR. FERNANDEZ: Good morning, 49 1 Commissioners. For the record, my name is Mike 2 Fernandez. I'm the director of administration. 3 Item No. X in your notebook is to advise 4 the Commission of staff's intent to extend our current 5 instant ticket testing contract for a period not to 6 exceed 180 days. 7 So if you have any questions, I'd be happy 8 to answer them. 9 CHAIRMAN WILLIAMSON: Thank you. 10 Commissioners, do you have any questions 11 or comments? 12 COMMISSIONER KRAUSE: No, ma'am. 13 COMMISSIONER DELGADO: No, ma'am. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 At this time, we will take a ten-minute 17 break, and we'll be back. 18 (Recess: 10:57 a.m. to 11:15 a.m.) 19 CHAIRMAN WILLIAMSON: Okay. Whoever's 20 coming in, if you'll come in, and please shut the door. 21 And we're back in at 11:15. 22 AGENDA ITEM NO. XI 23 CHAIRMAN WILLIAMSON: 24 All right. Our next item, No. XI, is 25 report, possible discussion and/or action on GTECH 50 1 Corporation. 2 MR. GRIEF: Commissioners, other than 3 what's in your notebooks today, I have nothing further 4 to report on that item. 5 CHAIRMAN WILLIAMSON: Thank you. 6 Commissioners, do you have any questions 7 or comments? 8 COMMISSIONER KRAUSE: No, ma'am. 9 COMMISSIONER DELGADO: No, ma'am. 10 AGENDA ITEM NO. XII 11 CHAIRMAN WILLIAMSON: All right. We will 12 proceed on to No. XII. 13 Gary, this is yours. 14 Possible discussion and/or action on 15 agency's operational status, agency procedures, awards, 16 and FTE status. 17 MR. GRIEF: On this item, Commissioners, 18 in addition to the items that I provided to you in your 19 notebooks, I would like to ask Bob Biard and John Shaw 20 to come forward and take a seat at the table, please. 21 I have two formal introductions of staff 22 for the Commission this morning. 23 First, I'd like to introduce to the 24 Commission Mr. John Shaw, who is on your right. John is 25 our recently-named human resources director. John has 51 1 been with the agency now for right at 10 years, with the 2 bulk of that time spent in the employee relations area; 3 but that doesn't begin to tell you the level of 4 experience that John brings to his new position. John 5 has over 35 years of governmental HR experience in 6 total, and I'm confident that John will do an excellent 7 job in his new role. 8 And I also want to introduce, on your 9 left, Mr. Bob Biard. I've recently named Bob as the new 10 agency general counsel effective September 1st when Kim 11 leaves the agency. Bob has been an assistant general 12 counsel with the agency for almost four years. Prior to 13 joining the Lottery Commission, Bob served as legal 14 advisor for two different statewide elected officials 15 with about 13 years of legal experience in state 16 government overall. And in addition, Bob has over 13 17 years of experience in private practice as well. Kim's 18 shoes will be extremely big -- big ones to fill, but I'm 19 excited about Bob taking on these new responsibilities. 20 Commissioners, that concludes my report 21 today. I'd be happy to answer any questions. 22 CHAIRMAN WILLIAMSON: Thank you. 23 Commissioners, do you have any questions 24 or comments? 25 COMMISSIONER KRAUSE: Welcome aboard. 52 1 MR. BIARD: Thank you. 2 CHAIRMAN WILLIAMSON: I think it's 3 indicative of the depth and the strength of this agency 4 and those heads of the departments and the staff that 5 they have in support. As you know, you guys make my job 6 really easy, and I brag on everyone here all the time 7 because we're only as good as those people that support 8 this effort. So congratulations and welcome to your new 9 levels, and thank you. 10 MR. BIARD: Thank you. 11 CHAIRMAN WILLIAMSON: Thank you. 12 AGENDA ITEM NOS. XIII THROUGH XX 13 CHAIRMAN WILLIAMSON: All right. The next 14 item, we will take XIII through XX. We will take those 15 all up together. These items are consideration of and 16 possible discussion and/or action, including adoption, 17 on amendments to bingo rules as specifically identified 18 in Items XIII through XX on the August 21st, 2012, open 19 meetings notice. 20 Sandy, these are your items, please. 21 MS. JOSEPH: Good morning. For the 22 record, my name is Sandra Joseph, special counsel of 23 Legal Services Division. 24 Items XIII through XX include eight bingo 25 rulemaking matters to be considered for adoption today. 53 1 They're adoption of amendments -- excuse me -- to 16 TAC 2 402, Rule 100, pertaining to definitions; Rule 103, 3 pertaining to training program; Rule 200, pertaining to 4 general restrictions on the conduct of bingo; Rule 202, 5 pertaining to transfer of funds; Rule 203, pertaining to 6 unit accounting; Rule 204, pertaining to prohibited 7 price fixing; Rule 205, pertaining to unit agreements; 8 and Rule 600, pertaining to bingo reports and payments. 9 Proposed amendments to all of these rules 10 were published in the Texas Register on June 22nd, 2012, 11 and a public hearing was held on July 11th, 2012. 12 Public comments were received -- excuse me -- on -- were 13 received on five of the proposed rules. In response to 14 these comments, changes were made to four of the 15 rules -- those being Rules 200, 203, 205, and 600 -- to 16 improve the wording and provide further clarification of 17 the intent of the rule. 18 One comment opposed the amendment to Rule 19 103, pertaining to training. The proposed amendment 20 deletes the provision allowing organizations to request 21 that the Bingo Division conduct training at a specific 22 time and location and for the division to be reimbursed 23 for travel cost. That provision is recommended to be 24 deleted. The staff disagreed with the comment, which 25 opposed deletion of this provision, due to budget 54 1 constraints. 2 Because the changes provide clarification 3 and do not impose any additional requirements or 4 restrictions, they do not necessitate republication in 5 the Texas Register. And the staff recommends adoption 6 of the eight rules that I have identified and as shown 7 in your notebooks. 8 I'll be happy to answer any questions. 9 CHAIRMAN WILLIAMSON: Thank you, Sandy. 10 Are there any questions, Commissioners? 11 COMMISSIONER KRAUSE: No. 12 COMMISSIONER DELGADO: No, ma'am. 13 CHAIRMAN WILLIAMSON: Is there a motion? 14 Let's -- do -- can we just include them all in one 15 motion, Kim? 16 MS. KIPLIN: Yes, I think you can. 17 COMMISSIONER KRAUSE: Well, then, I make a 18 motion that we adopt the proposed rule changes that are 19 identified in Agenda Items XIII through XX. 20 CHAIRMAN WILLIAMSON: Is there a second? 21 COMMISSIONER DELGADO: Second. 22 CHAIRMAN WILLIAMSON: All in favor? 23 COMMISSIONER DELGADO: Aye. 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 55 1 Motion passes 3-0. Thank you. 2 MS. KIPLIN: And, Commissioners, I have an 3 order for each rule adoption. 4 CHAIRMAN WILLIAMSON: Okay. 5 MS. KIPLIN: I'll give those to you now. 6 AGENDA ITEM NO. XXI 7 CHAIRMAN WILLIAMSON: All right. The next 8 item is the report by the Charitable Bingo Operations 9 Director and possible discussion and/or action on the 10 Charitable Bingo Operations Division's activities, 11 including updates on licensing, accounting and audit 12 activities, pull-tab review, special project, and 13 upcoming operator training. 14 Phil. 15 MR. SANDERSON: Good morning, 16 Commissioners. 17 The June and July report of bingo 18 activities is contained in your notebook, and I have 19 nothing further to add to those two items. However, I 20 would like to provide you some information that recently 21 happened in the division, as it relates to the 22 collection of prize fees and the allocations and the 23 first two quarter comparisons of calendar year '12 to 24 '11. 25 With the quarterly allocation that went 56 1 out last week, or maybe two weeks ago, there was a 2 record $7.3 million that was allocated to the state and 3 local jurisdictions. That brings the total for the 4 fiscal year of 2012 to over 12.9 million. Both are 5 records for allocations. Additional to that, as of last 6 week, we've already collected over $27 million in prize 7 fees, and that's the highest ever so far that we've had 8 collections for prize fees. 9 And comparing the first two quarters of 10 calendar year '12 to calendar year '11, gross receipts 11 are up 3.5 percent and charitable distributions are up 12 4.1 percent. So we're progressing to have a very good 13 year for Charitable Bingo in Texas this year. 14 And that's all I have. 15 CHAIRMAN WILLIAMSON: Right. Of course, 16 this doesn't impact our budget on what we can spend 17 either. 18 MR. SANDERSON: It does not. 19 CHAIRMAN WILLIAMSON: Okay. Are there any 20 questions or comments? 21 COMMISSIONER DELGADO: No, ma'am. 22 COMMISSIONER KRAUSE: I only have one 23 comment, and that is that I'm going to reiterate what I 24 said about the lottery, that our customers of Charitable 25 Bingo are intelligent people who know how to spend their 57 1 entertainment dollars. And so I think that this 2 reflects the freedom that people have, and that those 3 folks are not, you know, automatrons that just give 4 their money without thinking. 5 MR. SANDERSON: Thank you. 6 CHAIRMAN WILLIAMSON: Thank you. 7 Thank you, Phil. We'll miss hearing from 8 you. 9 AGENDA ITEM NO. XXII 10 CHAIRMAN WILLIAMSON: Our next item is 11 consideration of the status and possible entry of orders 12 in cases posted on the meeting agenda. 13 Kim, this is your item. 14 MS. KIPLIN: Commissioners, if I could, 15 I'd like to take up letters A through L together. 16 Commissioners, those are all lottery 17 retailer matters. They are all revocations, recommended 18 revocations. These cases were all presented at the 19 State Office of Administrative Hearings for 20 recommendation due to insufficient funds being available 21 at the time that the lottery swept their account. The 22 staff recommends that you do vote to approve the order 23 in each one of these cases revoking the license. 24 CHAIRMAN WILLIAMSON: Thank you. 25 Commissioners, do you have any questions 58 1 or comments? 2 COMMISSIONER DELGADO: No, ma'am. 3 CHAIRMAN WILLIAMSON: Is there a motion, 4 please? 5 COMMISSIONER KRAUSE: I make a motion that 6 we approve the proposed orders for Agenda Items XXII A 7 through L to revoke those licenses. 8 COMMISSIONER DELGADO: Second. 9 CHAIRMAN WILLIAMSON: Is there a second? 10 All in favor? 11 COMMISSIONER DELGADO: Aye. 12 COMMISSIONER KRAUSE: Aye. 13 CHAIRMAN WILLIAMSON: Aye. 14 Motion passes 3-0. 15 MS. KIPLIN: And, Commissioners, I have an 16 order for you. If you'll recall, we went to a -- more 17 of a mass order approach with these kind of routine 18 cases. 19 CHAIRMAN WILLIAMSON: All right. 20 MS. KIPLIN: Commissioners, with your 21 permission, I'm -- I would be happy to take up the 22 remaining letters L (sic) through T, or I can set those 23 out separately. It's your preference. 24 I will say, in letters L through T, they 25 are all proposed settlement agreements and agreed 59 1 dispositions. In each one of those cases, they were 2 either a result of a complaint received by the 3 Commission or an audit. The staff has entered into a 4 settlement agreement with each one, and the violations 5 are different violations through the Bingo Enabling Act. 6 CHAIRMAN WILLIAMSON: All right. 7 MS. KIPLIN: Happy to go into more detail, 8 if you'd like. The staff does recommend that you vote 9 to approve each one of the agreed orders in these cases, 10 letters M through T. 11 CHAIRMAN WILLIAMSON: M through T. 12 Commissioners, would you prefer to hear 13 them individually or as a group? 14 COMMISSIONER DELGADO: As a group. 15 COMMISSIONER KRAUSE: As a group. 16 CHAIRMAN WILLIAMSON: All right. 17 MS. KIPLIN: And then I -- there -- what I 18 would just say in summary is, the staff does recommend 19 that you vote to approve the agreed order in each one of 20 these cases. The violations are various violations 21 through the Bingo Enabling Act. Administrative 22 penalties are imposed and -- different amounts depending 23 on the particular matter and a requirement to pay the 24 prize fees that were outstanding at the time. 25 CHAIRMAN WILLIAMSON: All right. Is there 60 1 a motion? 2 COMMISSIONER KRAUSE: I make a motion that 3 we approve the proposed agreed orders for Agenda Item 4 XXII M through T. 5 CHAIRMAN WILLIAMSON: Is there a second? 6 COMMISSIONER DELGADO: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER DELGADO: Aye. 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 3-0. 12 MS. KIPLIN: Commissioners, I have an 13 order for each one of these. 14 COMMISSIONER KRAUSE: Mass, mass. 15 AGENDA ITEM NO. XXIII 16 CHAIRMAN WILLIAMSON: All right. And I 17 don't have any public comment request, which is the next 18 item. 19 AGENDA ITEM NO. XXIV 20 CHAIRMAN WILLIAMSON: So at this time, I 21 move the Texas Lottery Commission go into Executive 22 Session to deliberate the duties and evaluation of the 23 Executive Director, Internal Audit Director, and to 24 deliberate the duties of the General Counsel and Human 25 Resources Director pursuant to Section 551.074 of the 61 1 Texas Government Code; to deliberate the duties, 2 appointment, and/or employment of the Charitable Bingo 3 Operations Director pursuant to Section 551.074 of the 4 Texas Government Code; to deliberate the duties, 5 appointment and/or employment of an Acting Charitable 6 Bingo Operations Director pursuant to Section 551.074 of 7 the Texas Government Code; to receive legal advice 8 regarding pending or contemplated litigation pursuant to 9 Section 551.071(1)(A) and to receive legal advice 10 regarding settlement offers pursuant to Section 11 551.071(B) of the Texas Government Code and to receive 12 legal advice pursuant to Section 551.701(2) of the Texas 13 Government Code, including but not limited to those 14 items posted on the Open Meeting notices for purposes of 15 receiving legal advice. 16 Is there a second? 17 COMMISSIONER DELGADO: Second. 18 COMMISSIONER KRAUSE: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER DELGADO: Aye. 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 The vote is 3-0. The Texas Lottery 24 Commission will go into executive session. The time is 25 11:30 a.m. Today is August the 21st, 2012. 62 1 (Executive Session: 11:30 a.m. to 12:05 2 p.m.) 3 AGENDA ITEM XXV 4 CHAIRMAN WILLIAMSON: The Texas Lottery 5 Commission is out of executive session. The time is 6 12:05 p.m., and there is an action as a result of the 7 executive session. 8 COMMISSIONER DELGADO: I make a motion 9 that the Commission appoint and employ Bruce Miner as 10 the acting Charitable Bingo Operations Director at an 11 annual salary of $100,000 effective September 1st, 2012. 12 CHAIRMAN WILLIAMSON: Is there a second? 13 COMMISSIONER KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? Aye. 15 COMMISSIONER DELGADO: Aye. 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: The motion passes 18 3-0. 19 AGENDA ITEM XXVI 20 CHAIRMAN WILLIAMSON: We will go on to the 21 next item. It's a consideration of and possible 22 discussion and/or action on a request pursuant to the 23 2012-2013 General Appropriations act, Article IX, 24 Section 3.05. 25 Commissioners, in accordance with Article 63 1 IX, Section 3.05, of the General Appropriations Act, the 2 Commission is authorized to submit a request to seek 3 approval from the governor's office and the Legislative 4 Budget Board for an increase on the rate of compensation 5 for the Commission's executive director's position. The 6 current salary for this position is at $185,350, and I 7 believe an increase to the rate is justified. 8 Commissioners, do you have any questions 9 or discussion on this? 10 COMMISSIONER DELGADO: No, ma'am. 11 COMMISSIONER KRAUSE: No, ma'am. 12 CHAIRMAN WILLIAMSON: Okay. So at this 13 time, I make a motion that the Commission request the 14 Governor and the Legislative Budget Board approve the 15 setting of the salary rate for the Executive Director 16 position in an amount not to exceed $221,500 pursuant to 17 Section 3.05, Article IX, of the General Appropriations 18 Act. Is there a second? 19 COMMISSIONER DELGADO: Second. 20 COMMISSIONER KRAUSE: Second. Third. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 COMMISSIONER DELGADO: Aye. 24 CHAIRMAN WILLIAMSON: Aye. Motion passes 25 3-0. 64 1 AGENDA ITEM NO. XXVII 2 CHAIRMAN WILLIAMSON: At this time, there 3 is no other action. And is there a motion to adjourn? 4 COMMISSIONER KRAUSE: I move that we 5 adjourn. 6 COMMISSIONER DELGADO: Second. 7 CHAIRMAN WILLIAMSON: Is there a second? 8 All in favor? 9 COMMISSIONER DELGADO: Aye. 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 Motion passes 3-0. And the time is 13 12:08 p.m. 14 (Meeting concluded at 12:08 p.m.) 15 16 17 18 19 20 21 22 23 24 25 65 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter and Texas Certified Realtime Reporter, do 7 hereby certify that the above-mentioned matter occurred 8 as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my hand 15 and seal this 30th day of August 2012. 16 17 _______________________________ LORRIE A. SCHNOOR, RMR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/13 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 21 Austin, Texas 78752 512.474.2233 22 23 24 Job No. 103125 25