1 1 2 TRANSCRIPT OF PROCEEDINGS 3 BEFORE THE 4 TEXAS LOTTERY COMMISSION 5 AUSTIN, TEXAS 6 7 8 REGULAR MEETING OF THE § 9 TEXAS LOTTERY COMMISSION § FRIDAY, JANUARY 11, 2013 § 10 11 12 13 14 COMMISSION MEETING 15 FRIDAY, JANUARY 11, 2013 16 BE IT REMEMBERED THAT on Friday, the 11th 17 day of January 2013, the Texas Lottery Commission 18 meeting was held from 10:06 a.m. until 11:58 a.m., at 19 the Offices of the Texas Lottery Commission, 611 East 20 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 21 ANN WILLIAMSON and COMMISSIONERS J. WINSTON KRAUSE and 22 CYNTHIA TAUSS DELGADO. The following proceedings 23 were reported via machine shorthand by Aloma J. Kennedy, 24 a Certified Shorthand Reporter. 25 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 - FRIDAY, JANUARY 11, 2013 ............. 7 4 AGENDA ITEM NO. I - Meeting Called to Order ........ 7 5 STAFF RECOGNITIONS ................................. 7 6 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action on external 7 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 8 Internal Audit Division’s activities, including the biennial security study, the FY 2012 annual 9 financial audit and agreed upon procedures engagements, and the Internal Audit follow-up 10 review of previously conducted internal audits .... 12 11 AGENDA ITEM NO. III - Report, possible discussion and/or action on lottery sales and revenue, game 12 performance, new game opportunities, advertising, market research, trends, and game contracts, 13 agreements, and procedures ........................ 18 14 AGENDA ITEM NO. IV - Report, possible discussion and/or action on transfers to the State ............ 24 15 AGENDA ITEM NO. V - Consideration of and 16 possible discussion and/or action, including adoption, on amendments to 16 TAC §401.305 17 “Lotto Texas” On-Line Game Rule .................... 26 18 AGENDA ITEM NO. VI - Consideration of and possible discussion and/or action on the 19 Lotto Texas procedures ............................. 29 20 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action, including 21 adoption, on amendments to 16 TAC §§402.450 Request for Waiver; 402.453 Request for 22 Operating Capital Increase; and 402.503 Bingo Gift Certificates ............................ 31 23 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. VIII - Consideration of and possible discussion and/or action, including 4 proposal, on amendments to 16 TAC §§401.101 Lottery Procurement Procedures; 401.102 5 Protests of the Terms of a Formal Competitive Solicitation; 401.103 Protests of Contract 6 Award; and 401.104 Contract Monitoring Roles and Responsibilities ............................... 33 7 AGENDA ITEM NO. IX - Report, possible discussion 8 and/or action on agency contracts, including extension and/or amendments on the contract for 9 drawing studio and production services, and amendments on the contract for statistical 10 consulting services and drawings audit services .... 36 11 AGENDA ITEM NO. X - Report, possible discussion and/or action on the 83rd Legislature .............. 37 12 AGENDA ITEM NO. XI - Report, possible discussion 13 and/or action on GTECH Corporation ................. 47 14 AGENDA ITEM NO. XII - Report by the Executive Director and/or possible discussion and/or 15 action on the agency’s operational status, agency procedures, awards, and FTE status .......... 57 16 AGENDA ITEM NO. XIII - Report by the Acting 17 Charitable Bingo Operations Director and possible discussion and/or action on the 18 Charitable Bingo Operations Division’s activities, including updates on licensing, 19 accounting and audit activities, pull-tab review, and special projects ....................... 57 20 AGENDA ITEM NO. XIV - Consideration of the status 21 and possible entry of orders in: A. Docket No. 362-13-0309 – Yellow Rose 22 Country Store B. Docket No. 362-13-0310 – Randy’s 23 Grocery's and Deli C. Docket No. 362-13-0311 – Touchdown 24 Mart ................................... 58 25 5 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XV - Public comment................. 40 4 AGENDA ITEM NO. XVI - Commission may meet in Executive Session: 5 A. To deliberate the duties and evaluation of the Executive Director pursuant to 6 Section 551.074 of the Texas Government Code. 7 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 8 to Section 551.074 of the Texas Government Code. 9 C. To deliberate the appointment, employment, duties and/or evaluation of the Acting 10 Charitable Bingo Operations Director pursuant to Section 551.074 of the Texas 11 Government Code. D. To deliberate the appointment, employment, 12 and/or duties of the Charitable Bingo Operations Director pursuant to Section 13 551.074 of the Texas Government Code. E. To deliberate the duties of the General 14 Counsel pursuant to Section 551.074 of the Texas Government Code. 15 F. To deliberate the duties of the Human Resources Director pursuant to Section 16 551.074 of the Texas Government 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 the 19 Texas Government Code and/or to receive legal advice pursuant to Section 551.071(2) 20 of the Texas Government Code, including but not limited to: 21 22 23 24 25 6 1 TABLE OF CONTENTS 2 PAGE 3 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 4 Commission et al. Willis Willis v. Texas Lottery 5 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food 6 Store #2, Barkat N. Jiwani and Pankaj Joshi 7 Employment law, personnel law, procurement and contract law, 8 evidentiary and procedural law, and general government law .................. 59 9 AGENDA ITEM NO. XVII - Return to open session for 10 further deliberation and possible action on any matter discussed in Executive Session .............. 60 11 AGENDA ITEM NO. XVIII - Adjournment ................ 61 12 REPORTER'S CERTIFICATE ............................. 62 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 FRIDAY, JANUARY 11, 2013 3 (10:06 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call this meeting of the Texas Lottery 7 Commission to order. Today is January 11, 2013. The 8 time is 10:06 a.m. Commissioners Krause and Delgado are 9 present, so we do have a quorum. 10 Before we get to the first agenda item, 11 Gary, I'm going to turn this over to you for just a 12 moment, please. 13 MR. GRIEF: Thank you. Thank you, Madam 14 Chair. 15 STAFF RECOGNITIONS 16 I would like to ask Sandra Salazar and 17 Donna Lewis, two of our employees in Retailer Services, 18 to come forward, please, and take seats at that table. 19 I talk to the staff over time, when we've 20 had a chance to get together, and one of the things we 21 talk about is customer service. And working in customer 22 service, as Donna and Sandra do, you never know when an 23 opportunity comes along for you to make an impression 24 for the agency, and that can be good or it can be bad. 25 And what we strive to always do is to make that positive 8 1 impression. 2 And we've got a situation today that I'm 3 thrilled about, and I'm going to tell you the details 4 about it. And we have a guest who would like to comment 5 on it. And I want to tell you a little bit about Sandra 6 and Donna before we do that. 7 As I said, they both are lottery licensing 8 specialists. They work in the Lottery Operations 9 Division in the Retailer Services Department. And they 10 have recently teamed, worked very closely with 7-Eleven 11 Corporation to manage 7-Eleven's acquisition of 141 12 TETCO lottery retailer locations. And that happened 13 during the Thanksgiving holidays and then through the 14 Christmas holidays as well. 15 Changes of ownership are very tricky. 16 They require a great deal of paperwork, No. 1, and a 17 tremendous amount of coordination with our GTECH 18 colleagues who work out in the field and service those 19 retailer locations. It required also substantial 20 cooperation and coordination with both the prior 21 license-holders and the GTECH sales team for that 22 transition to occur. And make sure that the revenue for 23 the Foundation School Fund continues to be generated. 24 Both Sandra and Donna perform their work 25 at the very highest level. They demonstrated the 9 1 agency's core values of responsiveness, team work and 2 excellence. They are shining examples of the dedication 3 and commitment that our staff, not just in Lottery 4 Operations/Retailer Services, but throughout this 5 organization have, to get us to the record sales levels 6 that we continue to reach. 7 So with that, I would like to ask 8 Mr. Dewey Brackin, who I believe has signed a witness 9 affirmation form, Chairman, to come forward if you will. 10 MR. BRACKIN: Thank you, Director. 11 Chairman, Commissioners, good morning. My 12 name is Dewey Brackin. I'm an attorney here in Austin, 13 Texas, with the firm of Gardere Wynne Sewell. One of my 14 clients is 7-Eleven. 15 And, as Mr. Grief stated, we have gone 16 through a series of acquisitions. Not only was there 17 the TETCO acquisition of approximately 140 stores over 18 the Thanksgiving holidays, we had an additional 19 acquisition of the Speedy Stop chain, C. L. Thomas chain 20 out of Victoria, over the Christmas holidays. 21 So these ladies worked with my staff -- a 22 young lady, Jessica Reedy (phonetic), who could not be 23 here today -- and we were able to work together as a 24 team and successfully obtain the licenses for over 280 25 locations here within probably a two, two and a half 10 1 month period. 2 I'm a former state employee myself who 3 used to work for the Attorney General's in the Alcoholic 4 Beverage Commission. I know sometimes you feel as a 5 state employee, you can be toiling away in obscurity. 6 And when I was visiting with Commissioner Krause and he 7 gave me the invitation to come speak here today, I was 8 excited to do so and just to express my personal 9 appreciation for your hard work and courtesy and 10 diligence and wanted to let all of you here at the 11 Commission know that you do have some valued employees 12 here and that we really appreciate their hard work and 13 your service to the state. 14 So thank you very much. 15 COMMISSIONER KRAUSE: Thanks, Dewey. 16 CHAIRMAN WILLIAMSON: Thank you. 17 Do you want to say something? 18 COMMISSIONER KRAUSE: I do. I actually do 19 want to say something. 20 Thank you guys. I mean, what you do is 21 really, really important. Our ultimate customers, the 22 public, love our games, and so they want to keep 23 playing. Changes of ownership among licensed locations, 24 that's just part of business. And so I want to 25 congratulate you for putting in the extra work in time 11 1 to make this go smoothly and seamlessly, not just with 2 the buyer and the seller but for the public. 3 I want to contrast, you know, that great 4 work with things that I know happen in other agencies. 5 Dewey said that he is a former TABC person, and I had 6 some contact with the agency. And I've got to tell you, 7 when there is a transfer, you know, of a location that 8 sells liquor, it is really awkward, it takes a long 9 time. 10 And, in fact, just this week there was 11 radio time about a situation where TABC, you know, 12 couldn't get licenses to new people in locations where 13 they had been shut down, you know, by these nine, you 14 know, I guess thugs that were running locations here 15 down on 6th Street. So, oh, my gosh! How much liquor 16 revenue was lost during that year and a half and how 17 much rent was paid by the new people in the sites before 18 they could finally get their licenses? 19 So thank you for being a great role model 20 for how we ought to be doing it in government if we're 21 going to be licensing and regulating people. 22 CHAIRMAN WILLIAMSON: All right. Thank 23 you, ladies. And, as always, I brag on the people that 24 work at this agency. It makes all of us look really, 25 really good, and y'all do a fantastic job. Thank you. 12 1 (Applause) 2 AGENDA ITEM NO. II 3 CHAIRMAN WILLIAMSON: We'll go on to the 4 next agenda item. It's the consideration of and 5 possible discussion and/or action on external and 6 internal audits and/or reviews relating to the Texas 7 Lottery, and on the Internal Audit Division's 8 activities, including the biennial security study, 9 fiscal year end 2012 annual financial audit and agreed 10 upon procedures engagements and internal audit follow-up 11 review. 12 Cat, this is your item. And I know we 13 have two people here to present as well. 14 MS. MELVIN: Thank you, Madam Chair. 15 Commissioners, good morning. For the record, Catherine 16 Melvin, Directer of the Internal Audit Division. 17 We do have a few visitors here. I would 18 like to first invite Scott Krchnak and Kelli Leventhal 19 from the firm Maxwell, Locke & Ritter. This firm 20 performed our required annual financial audit, and they 21 also completed required agreed-upon procedures related 22 to our multi-state games. So I'll turn it over to them 23 to present their results. 24 MR. KRCHNAK: Thank you, Cat. For the 25 record, Scott Krchnak, audit partner with Maxwell, Locke 13 1 Ritter. 2 MS. LEVENTHAL: And for the record, my 3 name is Kelli Leventhal, and I was the manager of the 4 financial statement audit as of and for the year ended 5 August 31, 2012, and also the manager for the agreed- 6 upon procedures engagements which were as of and for the 7 period ended March 31, 2012. 8 First I would like to talk about the 9 agreed-upon procedures. We issued four agreed-upon 10 procedures reports this year. They covered Powerball, 11 Power Play, Mega Millions, and this year was the first 12 year that we were asked to do a Megaplier agreed-upon 13 procedures report. There were no findings in the 14 Megaplier and Power Play reports, and there were two 15 findings each in the Mega Millions and Powerball reports 16 that related to some testing of expired prize reports. 17 Regarding the financial statement audit as 18 of and for the year ended August 31, 2012, we issued an 19 unqualified opinion. That's the best opinion, commonly 20 referred to as a clean opinion. We also issued a report 21 on internal controls over financial reporting and 22 compliance and other matters. And the main thing I 23 would point out in that is that we did not identify any 24 deficiencies that we considered to be material 25 weaknesses in that report. 14 1 And then lastly, we issued a SAS 114 2 letter, which is more commonly referred to as a 3 governance letter. And in it we highlight some of the 4 major points of the audit for management and also the 5 Commission. And the primary item I would like to point 6 out is that we did not have any difficulties relating to 7 management while performing the audit. 8 Do you have any questions? 9 CHAIRMAN WILLIAMSON: Commissioners, do 10 y'all have any questions? 11 COMMISSIONER KRAUSE: No, ma'am. 12 COMMISSIONER DELGADO: No. 13 CHAIRMAN WILLIAMSON: Thank you. 14 MS. LEVENTHAL: I would just like to state 15 that again, you know, we really appreciated working with 16 the Controller's office. They've always been very 17 responsive. And, you know, we appreciate that kind of 18 client, so we would like to thank them as well. 19 CHAIRMAN WILLIAMSON: Thank you. We do 20 have an outstanding Controller's office here. Thank 21 you. 22 MS. LEVENTHAL: Thank you very much. 23 MS. MELVIN: Thank you. 24 Commissioners, I do also have another 25 required report to present. As you are aware, our State 15 1 Lottery Act requires the Texas Lottery Commission to 2 undergo a biennial security study, and that was 3 performed over the last year. And I would like the 4 vendor, Herb Delehanty, to come join us at the table. 5 Mr. Delehanty is with Delehanty Consulting. They 6 completed their review and have issued their report, and 7 so I'll ask him to present his results. 8 MR. DELEHANTY: Thank you, Cat. 9 For the record, I'm Herb Delehanty, 10 principal at Delehanty Consulting. Delehanty Consulting 11 is a lottery industry consulting firm that's focused on 12 enhancing the security, performance and integrity of 13 government-sponsored lotteries. In the past six years, 14 we've worked for more than half the U.S. lotteries and 15 we have performed 16 of these comprehensive security 16 evaluations. 17 The study's overall objectives were to 18 perform a comprehensive assessment of TLC's security 19 controls, identify specific current and potential risks 20 and identify control enhancements the TLC can use to 21 improve their overall security. The study included each 22 of the 12 lottery security aspects, including the state 23 lottery law. 24 We performed a rigorous risk assessment, 25 and we incorporated the results of that into a final 16 1 scope of work that was approved by the Lottery's 2 Director of Internal Audits. The results of the work 3 performed during the engagement indicated the overall 4 security of the Texas Lottery Commission is very good. 5 No issues were identified that would impact the 6 accuracy, fairness or integrity of any of the past, 7 current or upcoming games. 8 We found that the Texas Lottery Commission 9 distinguishes itself in a number of areas related to 10 security controls and monitoring. TLC's documentation 11 of procedures is truly exceptional. The Lottery has 12 exceptional practices designed to prevent instant ticket 13 quality issues and to detect non-random drawings. 14 We would like to extend our sincere thanks 15 and appreciation to the Texas Lottery Commission and its 16 staff for their cooperation. Whether we are meeting 17 with the senior staff or whether we are meeting with 18 staff in a claim center, everybody was extremely 19 cooperative and helpful. The staff provided every 20 document we requested, and they answered every question 21 that we asked. Mr. Grief and his staff could not have 22 been more accommodating. 23 We would also like to acknowledge the 24 excellent cooperation we received from the TLC vendors, 25 including GTECH, Scientific Games, Pollard Banknote and 17 1 SunGard. 2 I would be glad to answer any questions. 3 Thank you. 4 CHAIRMAN WILLIAMSON: Thank you. 5 Commissioners, do you have any questions? 6 COMMISSIONER DELGADO: No. 7 CHAIRMAN WILLIAMSON: Thank you. 8 MR. DELEHANTY: Thank you very much. 9 MS. MELVIN: Thank you. 10 Commissioners, one final item. Internal 11 Audit recently issued a report ourselves, and it was a 12 follow-up review. Internal Audit went back and 13 conducted a follow-up review of previously conducted 14 internal audits that had been issued from the Fiscal 15 Years 2009 through 2011. The purpose of follow-up 16 reviews are, of course, to determine whether management 17 has taken corrective actions noted in those audits or 18 has accepted the risk of not taking action. 19 So our conclusion there was that 20 management has made considerable progress in addressing 21 issues through the implementation of corrective action. 22 Of 38 prior findings reviewed, agency management has 23 reported 35 as corrected. Management's reported 24 progress demonstrates a commitment to efficient and 25 effective operations and continues improvement. 18 1 And that concludes my report. I'm happy 2 to answer any questions. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Commissioners, do you have any questions? 5 COMMISSIONER KRAUSE: No, ma'am. 6 COMMISSIONER DELGADO: No. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you. 9 MS. MELVIN: Thank you. 10 AGENDA ITEM NO. III 11 CHAIRMAN WILLIAMSON: Go on to the next 12 item. No. III is report, possible discussion and/or 13 action on lottery sales and revenue, game performance, 14 new game opportunities, advertising, market research, 15 trends and game contracts, agreements and procedures. 16 Kathy and Robert, please. 17 MS. PYKA: Good morning, Commissioners. 18 My name is Kathy Pyka. I'm the Controller for the 19 Commission. And with me to the right is Robert Tirloni, 20 our Products Manager. 21 Commissioners, our first chart this 22 morning that we have for you compares sales through the 23 week ending January 5, 2013. Our Fiscal Year 2013 sales 24 through this 19-week period are $1,472,000,000, which is 25 an increase of $111 million, or 8.2 percent as compared 19 1 to the $1,360,000,000 sales figure for the same period 2 last fiscal year. 3 Our Fiscal Year 2013 instant ticket sales 4 reflected on the second blue bar are at $1,062,000,000, 5 which is a $48.8 million increase over last fiscal year. 6 And, Commissioners, we continue to see exceptional year- 7 over-year sales increase in the instant ticket product, 8 with a cumulative increase right now of 4.8 percent over 9 Fiscal Year 2012. 10 Our Fiscal Year 2013 draw sales reflected 11 on the second red bar are at $410 million, which is a 12 $62.8 million increase over last fiscal year. 13 Commissioners, the Commission experienced 14 a significant increase in the draw sales for the 15 Commission following our $550 million Powerball jackpot 16 on November 28th. We would like to offer you a couple 17 of the highlights related to that jackpot. 18 First, our Powerball sales for that week 19 were $43.3 million. Commissioners, this surpassed our 20 previous high Powerball jackpot record of $10.8 million 21 sales for a week. Our sales for the day of the jackpot 22 were $30.2 million, again a record for the Commission. 23 And, more specifically, the 6 o'clock hour generated 24 four and a half million dollars of sales, or an average 25 sales rate per minute of $74,888. 20 1 Our total Commission instant and draw 2 sales for the same week were $121.2 million, which is 3 our highest week of sales since March of 2012, when we 4 had our record Mega Millions jackpot. 5 So I would like to move on to the next 6 slide which includes our cumulative average daily sales 7 comparison for Fiscal Years 2011, 2112, as well as 2013. 8 Our overall sales rate for Fiscal Year 2013 is at 9 $11.6 million, which is a $1.1 million per day increase 10 over the previous fiscal year and a $1.3 million sales 11 increase over Fiscal Year 2011. 12 Our jackpot games are highlighted on this 13 slide in the white font. And as you see, we're at 14 $1.87 million for Fiscal Year 2013, which is a $279,000 15 increase over last fiscal year and a $313,000 increase 16 over Fiscal Year 2011. Again of special note, we see 17 that we've got $832,000 as our average daily sales rate 18 for Powerball. 19 Our daily games, as highlighted in the 20 green font, are just under $1.4 million for the current 21 year but slightly over a $270,000 increase over the 22 previous fiscal years. 23 Our Daily 4 game in this area continues to 24 see a strong sales increase, with an increase of 25 12 percent over last fiscal year. 21 1 And then finally, our instant ticket 2 products at the bottom of the slide are at $8.4 million, 3 which is an increase of just over a half million dollars 4 over last fiscal year and $745,000 over Fiscal Year 5 2011. 6 So with that, Robert will now cover actual 7 sales by product. 8 MR. TIRLONI: Good morning, Commissioners. 9 For the record, my name is Robert Tirloni. I'm the 10 Products Manager for the Commission. 11 So this slide is our Fiscal Year '13 12 compared to Fiscal Year '12. This is through January 13 5th, last Saturday, and the same layout as the previous 14 slide. Our jackpot games are up at the top in white. 15 As a total, our jackpot games are up just over 16 $32 million in Fiscal Year '13. Again, we're seeing 17 very strong gains of just under $62 million for 18 Powerball. Again, that's related to the $550 million 19 jackpot in late November. 20 We are seeing declines in Mega Millions. 21 That is all jackpot-related. In the fall of 2011, 22 between September and December, we had two jackpots that 23 were won. One was $113 million in September, and one 24 was $206 million in December. And in this current 25 fiscal year, the highest jackpot we've gotten to was 22 1 $120 million, in September of '12. So that decrease is 2 due to jackpot levels. 3 We are seeing good growth in our daily 4 games. Those are in green in the middle of the slide. 5 We're seeing a gain of almost $31 million. You'll 6 notice in that section our All or Nothing game. That 7 started in September. And, of course, that's new sales. 8 That game was not available in Fiscal '12. But we've 9 seen just under $33 million in sales from the All or 10 Nothing game, so we're seeing very good results from 11 that game. 12 Daily 4 continues to do well. It's up 13 just over $2 million. And most of the other daily games 14 are holding about steady, which is good news, due to the 15 introduction of All or Nothing in the mix. 16 So all told, our draw games are up just 17 under $63 million. And on the instant side of the 18 house, we're up just under $49 million. That 19 $49 million gain includes very positive holiday game 20 sales. GTECH has been tracking the performance of our 21 holiday games this year, and they were up 11 percent 22 compared to last fiscal. So we've had a good holiday 23 season. A lot of those games are still out and still 24 available, and players are continuing to buy those 25 games. So we're very happy with the results of the 23 1 holiday season as well. And all of that contributes to 2 a gain of $111.6 million thus far for the fiscal year. 3 I do have one other item of update for 4 you. I've given you samples of our brand-new $10 5 spotlight game called 10X Mega Money. This game started 6 just this week, on Monday. This is our second $10 7 spotlight game or mega game. This game has over 8 $200 million in prizes. It has 10 one million dollar 9 prizes, and then it has 10 second-tier prizes of 10 $100,000. 11 So if you recall, $200 million Cash 12 Spectacular was our first $10 spotlight game, and that 13 game had tremendous results. It was our No. 2 game in 14 terms of sales. In terms of sales ranking, it was No. 2 15 last fiscal year. So we expect 10X Mega Money to also 16 be very successful and make significant contributions 17 towards our sales and revenue goals for this current 18 fiscal year. 19 This game will get full marketing and 20 advertising support like we typically put behind our 21 spotlight games. It will have TV, radio, our outdoor 22 boards, full array of in-store point of sale, and it 23 will also be featured on our flat panel displays in 24 store, our ESMM displays. And all that will kick off -- 25 even though the game has started, that whole effort will 24 1 kick off in the next couple of weeks. So by the end of 2 the month 10X Mega Money will be everywhere. 3 And that's our update for you for today, 4 but we're happy to answer any questions that you-all may 5 have. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you. 8 Commissioners, do y'all have any 9 questions? 10 COMMISSIONER DELGADO: No, ma'am. 11 CHAIRMAN WILLIAMSON: All right. Thank 12 you. 13 MR. TIRLONI: Thank you. 14 AGENDA ITEM NO. IV 15 CHAIRMAN WILLIAMSON: Go on to the next 16 item, report, possible discussion and/or action on 17 transfers to the State. 18 Kathy. 19 MS. PYKA: Thank you, Madam Chair. 20 Commissioners, the first report in your 21 notebook includes our transfers and allocations to the 22 Foundation School Fund, the Texas Veterans Commission 23 and the allocation of unclaimed prizes through the 24 period ending November 30, 2012. 25 Our total cash transfers for this period 25 1 amounted to $261.9 million for the first three months of 2 the fiscal year. And the second page of your notebook 3 includes a detail of the $261.9 million. Of this 4 amount, $250.2 million was the amount transferred to the 5 Foundation School Fund. We transferred $1.7 million to 6 the Veterans Commission. And the balance of $10 million 7 was transferred from unclaimed lottery prizes. 8 Commissioners, this represent a 10 and a 9 half percent increase, or $23.7 million over the amount 10 that we transferred through the same period last fiscal 11 year. 12 And I would like to also note in the 13 notebook, we've got the cumulative document. And our 14 cumulative transfers to the Foundation School Fund 15 through November of this year are now at $14.98 billion. 16 This concludes my presentation. I would 17 be happy to answer any questions. 18 CHAIRMAN WILLIAMSON: All right. No 19 questions. 20 Gary, do you want to make a comment? 21 MR. GRIEF: I do. I would like to make a 22 comment about that. 23 That report is through November? 24 MS. PYKA: Through November. Correct. 25 MR. GRIEF: And through today, the Lottery 26 1 has now passed the $15 billion mark to the Foundation 2 School Fund. And we were delighted this morning to 3 have, right before the meeting began, with the help of 4 our chairman, we had the Commissioner of the Texas 5 Education Agency here, Michael Williams. And we had a 6 photo opportunity to take with this ceremonial check 7 indicating that we passed the $15 billion mark to 8 education. 9 That's a milestone for us in a couple of 10 ways. One, the sheer dollar amount, but it's also the 11 first time that we've had the Commissioner from TEA come 12 over and participate in anything like that with us. And 13 I'm very excited about that situation and the 14 relationship that we seem to be building with that 15 agency. 16 CHAIRMAN WILLIAMSON: Thank you. 17 MS. PYKA: Thank you, Commissioners. 18 AGENDA ITEM NO. V 19 CHAIRMAN WILLIAMSON: All right. Let's go 20 on to the next item. It's consideration of and possible 21 discussion and/or action, including adoption, on 22 amendments to 16 TAC §401.305, Lotto Texas on-line game 23 rule. Bob. 24 MR. BIARD: Thank you, Commissioners. For 25 the record, I'm Bob Biard, General Counsel. 27 1 This item is a proposal to adopt 2 amendments to the Lotto Texas on-line game rule, without 3 changes to the proposed text that was published in 4 November 23, 2012 issue of the Texas Register. The 5 purpose of the adoption is to add a new add-on game 6 feature called "Extra" that allows players to purchase a 7 chance to increase the amount of any non-jackpot prizes 8 won in the Lotto Texas drawing and to win a prize for 9 matching two of the six numbers drawn. And it also 10 increases the length of the annutized prize payment 11 period from 25 years to 30 years. If you adopt the 12 proposed amendments, we propose that they will be 13 effective April 14, 2013. 14 We held a public comment hearing on 15 Wednesday, December 5th. No members of the public were 16 present. The Commission also received no written 17 comments from individuals, groups or associations during 18 the public comment period. 19 So our recommendation is to adopt the 20 proposed amendments, with an effective date of April 14, 21 2013. That's it. 22 CHAIRMAN WILLIAMSON: Commissioners -- go 23 ahead. 24 Do you have any questions? 25 COMMISSIONER KRAUSE: Now, this is to 16 28 1 TAC 402.450, et cetera? 2 MR. BIARD: No. I'm sorry. This is the 3 401.305. 4 CHAIRMAN WILLIAMSON: No. We're on Item 5 V. 6 COMMISSIONER KRAUSE: Okay. Gotcha! 7 MR. BIARD: And I have -- this is an 8 action item, so -- 9 CHAIRMAN WILLIAMSON: Right; right. It's 10 an action item. 11 Commissioners, any comments or questions? 12 COMMISSIONER DELGADO: No. 13 CHAIRMAN WILLIAMSON: Is there a motion? 14 COMMISSIONER KRAUSE: I make a motion that 15 we adopt the staff recommendation on amendments to 16 16 TAC §401.305, Lotto Texas On-Line Game Rule. 17 CHAIRMAN WILLIAMSON: Is there a second? 18 COMMISSIONER DELGADO: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER DELGADO: Aye. 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 Motion passes 3-0. 24 MR. BIARD: Thank you, Commissioners. I 25 have an order for you to sign. 29 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 AGENDA ITEM NO. VI 4 CHAIRMAN WILLIAMSON: And we'll go to the 5 next item. It's consideration of and possible 6 discussion and/or action on the Lotto Texas procedures. 7 Kathy. 8 MS. PYKA: Thank you, Madam Chair. 9 Commissioners, in 2008, the State 10 Auditor's office recommended that all proposed 11 procedures affecting the Lotto Texas game must be 12 adequately communicated to the public and the public be 13 given an opportunity to propose changes or make comments 14 prior to Commission approval. 15 Our procedures related to the Lotto Texas 16 jackpot estimation has been modified to incorporate the 17 revisions to the Lotto Texas game rule that was adopted 18 this morning. The changes to the procedure include 19 changing the annuity period from 25 years to 30 years, 20 starting the jackpot amount at $5 million and modifying 21 the roll increment to $250,000. 22 Commissioners, the procedure has been 23 routed through the Commission's formal review process, 24 and staff has agreed to the form and substance of the 25 procedure. It has recommended that Procedure OC-JE.002 30 1 be approved for publication in the Texas Register and on 2 the agency's website. If approved, the procedure will 3 be published in the Texas Register and on the agency's 4 website for a minimum of 30 days prior to receiving 5 public comment on the procedures. 6 This concludes my presentation. I would 7 be happy to answer any questions. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 Commissioners, do you have any questions? 11 COMMISSIONER DELGADO: No. 12 CHAIRMAN WILLIAMSON: So I understand, 13 Bob, this is done just like any other rule that we would 14 do. It gets posted, we have comments and -- 15 MR. BIARD: That's correct, except that a 16 hearing is required. And we will have a hearing after 17 the proposal has been published for at least 30 days. 18 CHAIRMAN WILLIAMSON: Thirty days. 19 MR. BIARD: Then we wait an additional 30 20 days before bringing it back to the Commission. 21 CHAIRMAN WILLIAMSON: Okay. 22 MR. BIARD: And do you need an action from 23 the Commission? 24 MS. PYKA: I do, please. 25 MR. BIARD: Sure. 31 1 They need a motion to publish this in the 2 Register. 3 CHAIRMAN WILLIAMSON: Okay. Is there a 4 motion to publish this? 5 COMMISSIONER KRAUSE: I make a motion that 6 we publish in the register for consideration of the 7 public comment. 8 CHAIRMAN WILLIAMSON: Is there a second? 9 COMMISSIONER DELGADO: Second. 10 CHAIRMAN WILLIAMSON: All in favor? 11 Aye. 12 COMMISSIONER KRAUSE: Aye. 13 COMMISSIONER DELGADO: Aye. 14 CHAIRMAN WILLIAMSON: Motion passes 3-0. 15 MS. PYKA: Thank you, Commissioners. 16 CHAIRMAN WILLIAMSON: Thank you, Kathy. 17 AGENDA ITEM NO. VII 18 CHAIRMAN WILLIAMSON: The next item 19 includes three rule adoptions that we'll take up 20 together: Consideration of and possible discussion 21 and/or action, including adoption, on amendments to 22 bingo rules as identified in Item VII on the January 11, 23 2013, open meeting notice. 24 Sandy. 25 MS. JOSEPH: Good morning, Commissioners. 32 1 For the record, my name is Sandra Joseph, Special 2 Counsel in the Legal Services Division. 3 Before you are three draft rules prepared 4 for submission to the Texas Register in order to adopt 5 amendments to 16 TAC §402.450, request for waiver; 6 §402.453, request for operating capital increase; and 7 §402.503, bingo gift certificates, without changes to 8 the text as proposed and published in the Texas Register 9 on November 23, 2012. 10 No comments were received on the proposed 11 rules, either at the hearing or in writing. The 12 amendments to 450, request for waiver, clarify the 13 information required in a licensed authorized 14 organization's application for a waiver regarding the 15 net proceeds requirement. 16 The amendments to §402.453 clarify the 17 information required in an application for an increase 18 in operating capital. 19 And, finally, §402.503 concerning bingo 20 gift certificates makes the rule consistent with other 21 administrative rules in the Bingo Enabling Act regarding 22 the time frame for depositing funds in the bingo 23 account. 24 Staff recommends that the Commission adopt 25 the draft rules as shown in your notebooks. 33 1 CHAIRMAN WILLIAMSON: Thank you. 2 Commissioners, do you have any questions? 3 COMMISSIONER DELGADO: No, ma'am. 4 CHAIRMAN WILLIAMSON: Is there a motion? 5 COMMISSIONER KRAUSE: I make a motion that 6 we adopt the rules that amend 16 TAC 402.450, 402.453 7 and 402.503, bingo gift certificates. 8 CHAIRMAN WILLIAMSON: Is there a second? 9 COMMISSIONER DELGADO: Second. 10 CHAIRMAN WILLIAMSON: All in favor? 11 COMMISSIONER KRAUSE: Aye. 12 CHAIRMAN WILLIAMSON: Aye. 13 COMMISSIONER DELGADO: Aye. 14 CHAIRMAN WILLIAMSON: Motion passes 3-0. 15 MR. BIARD: Thank you, Commissioners. I 16 have three rule orders for you to sign. 17 CHAIRMAN WILLIAMSON: Okay. 18 AGENDA ITEM NO. VIII 19 CHAIRMAN WILLIAMSON: The next item 20 includes four rule proposals we will take up together: 21 Consideration of and possible discussion and/or action, 22 including proposal, on amendments to the Commission's 23 procurement rule, 16 TAC §401.101 through 401.104, 24 especially identified in Item VIII on the January 11, 25 2013 open meetings notice. 34 1 Ms. Burnett, welcome. 2 MS. BURNETT: Good morning, Commissioners 3 and Chairman. For the record, my name is Lea Burnett. 4 I'm an Assistant General Counsel with Legal Services, 5 and I'm here this morning to present to you proposed 6 amendments to four rules for your consideration. These 7 will be posted for public comment in the Texas Register. 8 These rules involve procurement. And the 9 amendments are an outgrowth of the periodic rule review 10 that took place with this chapter that was conducted in 11 late 2011. These rules are specifically Rule 401.101 12 governing lottery procurement procedures; Rule 401.102, 13 protests of the terms of a formal competitive 14 solicitation; Rule 401.103, protest of a contract award; 15 and Rule 401.104, contract monitoring rules and 16 responsibilities. 17 The proposed amendments are generally 18 non-substantive, and we intend them to improve clarity. 19 We seek to update certain definitions within the rules, 20 to make grammatical changes and, in particular, to add 21 the ability to serve certain contract notices by email. 22 We believe the proposed changes will improve the 23 efficiency of the procurement business processes for the 24 agency and for the public. We propose them under a 25 common preamble. 35 1 Staff recommends that the Commission 2 initiate rulemaking process by publishing the attached 3 amendments to 16 TAC 401.101 through 401.104 in the 4 Texas Register to receive public comments for a period 5 of 30 days. 6 And I'm glad to answer any questions you 7 might have. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioners, do you have any questions? 10 COMMISSIONER KRAUSE: No. 11 COMMISSIONER DELGADO: No. 12 CHAIRMAN WILLIAMSON: Is there a motion? 13 COMMISSIONER KRAUSE: I make a motion that 14 we initiate the rulemaking process by publishing the 15 attached amendments to 16 TAC §401.101, .102, .103 and 16 .104 in the Texas Register in order to receive public 17 comment, for a period of 30 days. 18 CHAIRMAN WILLIAMSON: Thank you. 19 Is there a second? 20 COMMISSIONER DELGADO: Second. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER DELGADO: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Motion passes 3-0. 36 1 Thank you. 2 MS. BURNETT: Thank you. 3 MR. BIARD: Commissioners, I have a T-bar 4 memorandum for you to sign. 5 AGENDA ITEM NO. IX 6 CHAIRMAN WILLIAMSON: The next report is 7 report, possible discussion and/or action on agency 8 contracts, including extension and/or amendments on the 9 contract for drawing studio and production services, and 10 amendments on the contract for statistical consulting 11 services and drawings audit services. 12 Mr. Fernandez. 13 MR. FERNANDEZ: Good morning, 14 Commissioners. For the record, my name is Mike 15 Fernandez. I'm the Administration Director. 16 This item is staff's intent to advise the 17 Commission of amendments to three contracts, the first 18 being the drawings studio and production services 19 contract. We're going to exercise a one-year extension 20 on that contract, and that will be the last extension. 21 The next two are for statistical 22 consulting services and for drawings audit services. 23 And this is the notice to the Commission that we may 24 very well amend these contracts, based on any changes 25 that are required as a result of the Lotto Texas game 37 1 change rule. 2 If you have any questions, I would be 3 happy to answer them. 4 CHAIRMAN WILLIAMSON: All right. Thank 5 you. 6 Commissioners, do you have any questions? 7 COMMISSIONER DELGADO: No. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 AGENDA ITEM NO. X 11 CHAIRMAN WILLIAMSON: Go on Item No. X. 12 It's report, possible discussion and/or action on the 13 83rd Legislature. 14 Nelda, please. 15 MS. TREVINO: Good morning, Commissioners. 16 For the record, I'm Nelda Trevino. I'm the Director of 17 Governmental Affairs. 18 As you're aware, the legislative session, 19 the 83rd Legislature convened its session earlier this 20 week, on January the 8th. You have been receiving 21 legislative tracking reports on bills that have been 22 filed that impact the agency, and we provided you this 23 morning with an updated tracking report. 24 There have been over 600 bills that have 25 been filed so far, and we are currently tracking 32 38 1 bills. There are a few bills that specifically relate 2 to the agency that I would like to note this morning. 3 They include the following: 4 House Bill 292 by Rep. Eddie Rodriguez. 5 This bill relates to authorizing poker gaming and 6 creates a Poker Gaming Division here at the Lottery 7 Commission for the regulation of these activities. 8 HJR 25 by Rep. Richard Raymond. This 9 joint resolution would amend the constitution to 10 dedicate lottery proceeds to fund public education and 11 would prohibit any advertising that would promote the 12 purchase of tickets for the purpose of supporting public 13 education. 14 And the last bill I want to mention is 15 House Bill 394, and this bill is by Rep. Senfronia 16 Thompson, and this bill would exempt bingo prizes of $50 17 or less from the $2,500 prize cap. 18 Also as a reminder, as part of the 19 agency's Sunset review process, we anticipate the 20 agency's sunset bill that will incorporate the 21 recommendations adopted by the Sunset Advisory 22 Commission will be filed at a future date, and we'll be 23 monitoring that and keeping you posted on those 24 developments. 25 And, lastly, we'll advise you on the 39 1 composition of the Senate and House committees, 2 particularly our agency's oversight committees, once the 3 Speaker of the House and the Lieutenant Governor make 4 those appointments. 5 This concludes my report, and I will be 6 glad to answer any questions. 7 CHAIRMAN WILLIAMSON: Thank you. 8 Commissioners, do you have any questions? 9 COMMISSIONER DELGADO: No, ma'am. 10 COMMISSIONER KRAUSE: Do we want to 11 regulate poker? 12 CHAIRMAN WILLIAMSON: That is not ours to 13 decide. 14 (Laughter) 15 COMMISSIONER KRAUSE: Can we have an 16 opinion on it? 17 CHAIRMAN WILLIAMSON: That is not ours to 18 opine. 19 COMMISSIONER KRAUSE: I'm a citizen, and I 20 don't like it. 21 CHAIRMAN WILLIAMSON: Well, that would be 22 a private opinion for you to share with whomever your 23 choose. 24 COMMISSIONER KRAUSE: All right. 25 (Laughter) 40 1 CHAIRMAN WILLIAMSON: Thank you, Nelda. 2 At this time we'll take a 10-minute break, 3 and we'll be back here at five till 11:00. 4 (Recess: 10:45 a.m. to 11:00 a.m.) 5 CHAIRMAN WILLIAMSON: Okay. If everybody 6 will be seated, we'll start. 7 We're back in session, 11:00 a.m. 8 AGENDA ITEM NO. XV 9 CHAIRMAN WILLIAMSON: We're going to skip 10 to Item XV, which is public comment. 11 Ms. Laveda Brown, please, if you'll come 12 up to the podium here. 13 MS. BROWN: Good morning. My name is 14 Laveda Brown, and I'm President and CEO of the Cen-Tex 15 African American Chamber of Commerce out of Waco Texas. 16 And I'm here as a non-profit who has 17 experience in playing bingo games, and I'm here as a 18 grassroots leader and here to bring some things to the 19 forefront and make some recommendations and share some 20 experiences that our organization had. 21 One of the things that I am aware of, I am 22 an expert in many industries, but I am not a bingo 23 expert. I'm not a bingo industry expert. And so one of 24 the things that I do is, what I'm good at, I'm good at. 25 What I'm not good at, I find advice or counsel to help 41 1 me get through those issues. 2 So what our organization did was, we hired 3 someone with the expertise that we felt we did not have 4 to help us run our bingo operation. We started our 5 bingo operation I believe in 2008. And again, we hired 6 someone to do that, to teach us through the process. We 7 hired an expert that had many years of experience, and 8 we became a victim of that expertise, because every time 9 we brought up an issue, we were told if we didn't play 10 ball the way that organization played ball, that we were 11 going to be kicked out of the organization. 12 We were also told that there was no one 13 within 60 or 70 miles that had the expertise to do the 14 paperwork and the accounting for the bingo operation. 15 We verified that information when we tried to find 16 someone else to do our paperwork. There was no one with 17 the expertise in our area that -- and there was no one 18 to teach us how to do the paperwork. 19 And when I went to a hearing in November, 20 one of the -- we were called in for a hearing. I forgot 21 what the hearing was called -- there were four 22 organizations at the hearing. And every organization 23 that I heard their comments, it was paperwork related. 24 Non-profits do not have the resources and expertise to 25 do the paperwork. And if there is no one that's going 42 1 to be there to train us how to do the expertise, we're 2 victims. 3 And so my recommendation is that there 4 needs to be training on how to do this paperwork. If 5 the paperwork is getting non-profits in trouble, then 6 there needs to be someone who is going to teach 7 non-profits, because you're here to help non-profits, 8 but you're not helping them if you leave them without 9 direction. 10 Also we did take the on-line training; 11 four of our officers took the on-line training. It was 12 a good start; it was a good place to learn about the dos 13 and the don'ts. It was only a starting place. It did 14 not teach us how to run a clean quality organization. 15 So it's my recommendation that as you go 16 forward and you begin to get some training and some 17 resources for non-profits, that you talk about the best 18 and worst practices. And I would love to be -- to share 19 my experience as one of the dos and don'ts of running a 20 bingo operation. 21 But there needs to be input also. I 22 understand that there is a module in place now, but the 23 Lottery Commission, the employees, they know again the 24 dos and don'ts, but they have not been in the trenches. 25 And so it is my recommendation that you also talk to 43 1 someone who has been in the trenches, who has felt the 2 pain and the frustration of trying to make a bingo 3 operation work. So there needs to be some input, there 4 needs to be more training on the dos and don'ts and best 5 and worst practices. 6 Also I would like to recommend that the 7 newsletter, while you have a newsletter, while you have 8 one on-line, that it talks the language of lay people. 9 A lot of times it talks the jargon of inside the 10 industry and the rules and regulations in a lawyer 11 terminology. And basically few of us are lawyers. Few 12 of our non-profit organizations have the resources or 13 the experience that they need to be able to understand 14 what this jargon is saying. 15 We had a problem with the 8-liners. Our 16 organization was in a hall that had 8-liners, and 17 somehow the 8-liner -- I won't go into that. I would 18 love to share that with you at another time. But we 19 were -- I lost my train of thought. Forgive me -- about 20 the 8-liners, we need to know -- I know what I was going 21 to say. 22 When I began to research the rules and 23 regulations of the 8-liners, there was no place to find 24 that information. I did some research. I found out 25 some results of some hearings, but it was in jargon I 44 1 didn't understand, so I was just as confused when I 2 found the research about the 8-liner organizations being 3 in a bingo hall and however the prize money is 4 transferred. It was not written in layman's terms. So 5 there needs to be a process where there is a newsletter 6 written in layman's terms. 7 And also there needs to be a way that it 8 can be mailed hard copy, because a lot of the 9 non-profits that I deal with are not technology savvy. 10 So my recommendation is that there needs to be more 11 consideration, more commitment and understanding of the 12 issues for the non-profits who are trying -- just trying 13 to reach their mission and needs help with the bingo 14 operation to fund their grassroots passionate mission. 15 That's all I have to say. I would love to 16 come back and be posted on the agenda so that I can talk 17 more about our in-depth experience and just share how 18 negative some organizations, the experience for some 19 organizations can be. 20 CHAIRMAN WILLIAMSON: Appreciate you 21 coming and sharing your comments. 22 I think Commissioner Krause has a -- 23 COMMISSIONER KRAUSE: The person that told 24 you that they were the big expert and that you had to do 25 what they say, was that a person that was connected with 45 1 the hall -- 2 MS. BROWN: Yes. 3 COMMISSIONER KRAUSE: -- that y'all were 4 leasing a space with? 5 MR. BIARD: Commissioners -- 6 MS. BROWN: It was both the -- 7 MR. BIARD: -- I'm sorry to interrupt. 8 Just out of an abundance of caution, I just want -- 9 Ms. Laveda had a case -- I'm not sure if it's still 10 pending or not -- at the Commission. But it was a -- 11 MS. BROWN: Is it still pending? I don't 12 know. 13 MR. BIARD: It was an enforcement matter. 14 It's not specifically posted for this meeting. Out of 15 an abundance of caution, I would advise you not to 16 discuss it, the particular matters in this proceeding. 17 Under the Open Meetings Act, your options are really to 18 direct that it be placed on a future agenda for 19 discussion. 20 COMMISSIONER KRAUSE: Well, if I don't 21 want to discuss it but I want to draw out information 22 from her, then I can do that? 23 MR. BIARD: I think the Open Meetings Act 24 would consider that to be part of a -- 25 MS. BROWN: I would be more than happy to 46 1 come back. When is the next meeting? Can I ask that 2 questions? 3 COMMISSIONER KRAUSE: Next month. 4 MR. BIARD: We could specifically post it, 5 if that was your desire. 6 CHAIRMAN WILLIAMSON: Okay. We would love 7 for you to come back. 8 MS. BROWN: Thank you. 9 CHAIRMAN WILLIAMSON: We appreciate your 10 comments and understand some of your frustrations. 11 MS. BROWN: All right. Thank you. 12 CHAIRMAN WILLIAMSON: Thank you for 13 sharing your concerns. 14 MS. BROWN: Okay. See you next month. 15 (Laughter) 16 MR. MINER: Chairman? 17 CHAIRMAN WILLIAMSON: Yes? 18 MR. MINER: Could I add that Ms. Brown and 19 I have been discussing this and that we're sensitive to 20 her frustrations. We're in the process of going through 21 a revised training program to update it, make it more 22 current, make it more user-friendly. And I've asked her 23 to provide some input so we can expand on our lessons 24 learned. 25 CHAIRMAN WILLIAMSON: Okay. Good. All 47 1 right. Thank you. 2 AGENDA ITEM NO. XI 3 CHAIRMAN WILLIAMSON: Let's go on to the 4 next item, No. XI, report, possible discussion and/or 5 action on GTECH Corporation. 6 Gary. 7 MR. GRIEF: Commissioners, other than 8 what's in your notebooks today, I have nothing further 9 to report. But I would like to invite Joe Lapinski, the 10 Account General Manager for GTECH Texas, forward to 11 introduce some special guests we have from both 12 Lottomatica and GTECH organizations. 13 MR. LAPINSKI: Good morning, Commissioners 14 and Madam Chair. For the record, I'm Joe Lapinski, the 15 Account Development Manager for GTECH, representing 16 GTECH in Texas. And I have the privilege of not only 17 representing GTECH in Texas but working with Gary Grief 18 and his staff on a daily basis. And I've had the 19 opportunity to address the Commission from time to time. 20 Today I have the added privilege to 21 introduce and make available to you two other 22 individuals from GTECH. First, I have the Chief 23 Executive Officer of Lottomatica, GTECH's parent 24 company, Marco Sala, sitting to my immediate right. And 25 at the other end of the counter, I have Chief Executive 48 1 Officer of GTECH, Jaymin Patel, who is no stranger to 2 the Commission. 3 So I'm pleased to introduce them today. 4 And I would like to turn it over to Marco at this time 5 and let them address the Commission. Thank you. 6 CHAIRMAN WILLIAMSON: All right. Thank 7 you. 8 MR. SALA: Good morning Chairman 9 Williamson, Commissioner Krause and Commissioner Delgado 10 and Executive Director Grief. I want to thank you for 11 this opportunity to address the Commission. 12 For the record, my name is Marco Sala. I 13 am the CEO of Lottomatica Group, the parent company of 14 GTECH. I am joined here today by a colleague and fellow 15 board member at the Lottomatica group, Jaymin Patel, the 16 Chief Executive Officer of GTECH Corporation. 17 Let me begin by first congratulating you 18 on the success that you have had in 2012. The sales 19 record set in 2011 of $3.8 billion was impressive. 20 Sustaining that momentum into 2012 was a difficult 21 challenge. It required innovation and a focus on 22 continuing to drive the business to unlock its 23 potential. It is testimony, too, of the leadership of 24 the Commission and the talents and dedication of the 25 Executive Director Grief and his staff that you did it. 49 1 Achieving a new sales record of 2 $4.2 billion in 2012 was an outstanding accomplishment. 3 It is clear to everyone in our industry that something 4 very good is happening in Texas. 5 I would also like to comment on the 6 leadership role that you have allowed Gary Grief to take 7 on with the industry organizations. I am a member of 8 the European and World Lottery Association, and I can 9 tell you it's important work. 10 As the lead director of the Mega Millions 11 consortium and as a first vice president of NASPL, 12 Gary's good judgment has earned him the respect and 13 admiration of his colleagues. When you couple those 14 prominent acknowledgments with the success that you have 15 achieved in Texas, you can take comfort in the fact that 16 the Texas Lottery remains firmly established as one of 17 the most respected lotteries in the United States and 18 throughout the world. 19 I am told that your perspective in Texas 20 is that, "It all stops at the border." Nevertheless, 21 you should be rightfully proud of the recognition given 22 you by your contemporaries around the world. I also 23 appreciate that your tenure on the Commission predates 24 Lottomatica's acquisition of GTECH. If I may, I would 25 like to give you an overview of Lottomatica Group's 50 1 business and how GTECH fits in it. 2 Lottomatica Group is a publicly traded 3 company on the Milan Stock Exchange. It is majority 4 owned by the De Agostini, a privately held century-old 5 company with interests in publishing, finance, insurance 6 and media. De Agostini acquired Lottomatica in 2001 and 7 thus began its heightened interest in gaming. 8 In 2006, Lottomatica acquired GTECH with a 9 strategy to integrate and leverage the strengths of the 10 two companies that were world leaders in what they do. 11 Lottomatica had established itself as the leading 12 lottery and commercial gaming operator and GTECH as the 13 leading lottery technology and management solutions 14 provider. 15 Lottomatica Group was formed and today is 16 comprised of three subsidiaries: Lottomatica, the 17 leading gaming operator in Italy; GTECH, with whom I 18 know you are familiar; and Spielo International, a 19 leading supplier of games, systems and technology to the 20 on-line and machine gaming sectors. 21 It has been my experience that many 22 domestic U.S. lottery officials are not well acquainted 23 with the Italian market. If I may, I would like to 24 offer some insight that you might find of interest. 25 Italy went through a period in which it implemented new 51 1 licensing and regulatory structures for various forms of 2 gaming, including the machine gaming, sports betting, 3 interactive and on-line gaming. I am pleased to report 4 that in this area, my country is getting a lot of 5 positive recognition from its European neighbors and the 6 European Union. 7 Lottomatica Group has participated in the 8 legalization of the market and has licenses in each of 9 the sectors. In addition to our Scratch & Win and the 10 Lotto licenses. To give you some perspective, Scratch & 11 Win and Lotto wagers for this year are likely to reach 12 almost 17 billion Euros, or approximately 22 billion 13 U.S. dollars. 14 We have not yet reported our 2012 numbers. 15 Our fiscal year is the calendar year. To give you some 16 sense of the size and the scope of our worldwide 17 business, the Group is well on its way to achieve its 18 announced 2012 guidance which should result in well over 19 3 billion Euros in revenues and one billion Euros in 20 EBITDA. This is a record and represents a solid growth 21 over 2011. 22 We have been able to achieve this 23 performance because of the integration and complimentary 24 activities of our subsidiaries. GTECH, in particular, 25 has been a bridge for us to bring some of the 52 1 innovations and insights we have gained in Italy to the 2 domestic markets in the U.S. Some of our executives 3 from Italy that have extensive experience and market 4 insights have joined the GTECH marketing team. I 5 believe that you have had the benefit of some of their 6 insights in helping to support your activities here in 7 Texas. 8 And I know our efforts to assist you are 9 likely to improve because my colleagues have told me 10 they really have gotten to like Texas barbecue. And 11 personally, I'm still working on that one. 12 (Laughter) 13 Finally, I want to assure you about the 14 financial capability and soundness of Lottomatica Group. 15 We have a base principle that we will always maintain an 16 investment grade credit rating and are one of the few 17 gaming companies that are able to do so. 18 Recently we undertook a refinancing of our 19 balance sheet and successfully concluded 500 million 20 bond offering at very attractive rates that was 21 significantly oversubscribed. The response validated 22 our approach. We are cautious stewards of our 23 shareholders' capital, and that has given us the means 24 to maintain and grow our business in face of difficult 25 economic times in some of the regions in which we do 53 1 business. 2 Simply, we have the expertise, capability 3 and resources to support your business now and in the 4 future. 5 Now I would like to ask Jaymin to conclude 6 with a few comments of his own. 7 MR. PATEL: Thank you, Marco. 8 Commissioners, Chairman Williamson, 9 Executive Director Gary Grief, thank you very much for 10 the invitation to be here today. We're very pleased to 11 present to you. Let me also offer my congratulations on 12 Texas' great result these past two years. It's been an 13 outstanding testament to the great work that's been done 14 here in growing sales and returns to the school children 15 of Texas. 16 I'll offer some very brief comments to you 17 on some developments that may be of some interest to you 18 in the industry at-large. We have just finished a great 19 year at GTECH as well, in line with Lottomatica Group. 20 And in the past several years, our results have been 21 helped by the excellent performance of the Texas 22 Lottery, of course. And we see that performance in 23 Texas and in our businesses around the United States and 24 the world continuing into 2013, as new ideas and games 25 are taking hold in Texas and many jurisdictions. So we 54 1 see a very good solid basis for continuing the great 2 growth that you've experienced in the last few years. 3 As you are probably well aware, a number 4 of states have decided, as Texas did many years ago, to 5 begin to work with commercial lottery operators in 6 expanding the level of services provided by private 7 companies in their states and in their countries. 8 The recent trend of so-called private 9 management deals in which states such as Illinois, 10 Indiana, Pennsylvania and New Jersey have decided to 11 outsource some of the management of their lotteries to 12 companies like ours is based on principles developed 13 right here in Texas. 14 You should be aware that when we are asked 15 around the world about our opinion by state officials as 16 to the best structure for operating a lottery, we always 17 start the conversation by describing the Texas model, 18 because we believe that the Texas model was put together 19 in a very thoughtful and comprehensive manner that led 20 to a strong competition. And we believe that the 21 alignment between our interests and the state's 22 interests are very strong and that there are incentives 23 to award success and provide great services to you. 24 And fundamentally that's our objective, 25 which is that we want to be able to provide great 55 1 services and to expand our businesses through this kind 2 of relationship with other jurisdictions as well. It's 3 something that you take for granted here in Texas, but 4 other states are beginning to adopt these kinds of 5 practices as well. 6 The Texas model has withstood the test of 7 time, and your success speaks for itself. Our 8 partnership we feel very strongly about has delivered 9 great results, and we take tremendous pride in that 10 accomplishment. 11 Let me acknowledge that we also appreciate 12 that success requires hard work and focus. Marco 13 already mentioned the great work done by Gary and his 14 team. I would like to acknowledge that as well. In the 15 last year or so, we worked very well with Gary, with 16 Michael Anger and people on the team to help drive sales 17 in the business, and we're very happy to provide our 18 resources and our expertise from around the world in 19 bringing new ideas to Gary to help keep driving the 20 business. 21 So I assure you that from my point of view 22 and from the Group's point of view, that Texas is a very 23 important customer for us. It's top of mind for me 24 every day, and this is a top priority. So you have my 25 personal commitment that we will make certain it remains 56 1 there. 2 Thank you very much for your time. Now 3 Marco and I will be happy to answer your questions. 4 Thank you. 5 CHAIRMAN WILLIAMSON: Thank you for your 6 comments. 7 Commissioners, do you have any questions? 8 This is the time to grill these folks. 9 (Laughter) 10 COMMISSIONER KRAUSE: I've already had my 11 shot. 12 (Laughter) 13 CHAIRMAN WILLIAMSON: Thank you for 14 coming. We're honored that you came over from Italy to 15 spend time with us. In my short tenure here, I have 16 been very impressed with the response that your group 17 has provided to the executive staff here. They go above 18 and beyond in many cases. 19 As you probably are aware, Texas may not 20 be the easiest place to always deal with some of the 21 situations and confines that we have, be it statutorily 22 and otherwise. And so for that, thank you. I think 23 it's been a successful partnership. And thank you for 24 coming. 25 MR. SALA: Thank you very much. I 57 1 appreciate very much your ideas. Thank you again. 2 CHAIRMAN WILLIAMSON: Thank you. 3 AGENDA ITEM NO. XII 4 CHAIRMAN WILLIAMSON: All right. Let's go 5 on to the next item. It's the report by the Executive 6 Director and/or possible discussion and/or action on 7 agency's operational status, agency procedures, awards 8 and FTE status. 9 Gary. 10 MR. GRIEF: Chairman, other than what's in 11 your notebooks, I have nothing further to report at this 12 time. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you. 15 AGENDA ITEM NO. XIII 16 CHAIRMAN WILLIAMSON: The next item is 17 report by the Acting Charitable Bingo Director and 18 possible discussion and/or action on the division's 19 activities, including updates on licensing, accounting 20 and audit activities, pull-tab review and special 21 project. 22 Bruce. 23 MR. MINER: Commissioners, for the record, 24 my name is Bruce Miner, Acting Director of Charitable 25 Bingo Operations Division. And the November and 58 1 December reports for summarizing our bingo activities 2 are located in your notebook. Other than what's in your 3 notebook today, I have nothing further to report. 4 CHAIRMAN WILLIAMSON: Thank you. 5 Commissioners, do you have any questions? 6 COMMISSIONER DELGADO: No. 7 AGENDA ITEM NO. XIV 8 CHAIRMAN WILLIAMSON: All right. And our 9 next item is consideration of the status and possible 10 entry of orders in cases posted on the open meetings 11 agenda. 12 Bob. 13 MR. BIARD: Thank you, Commissioners. I 14 have three enforcement-related cases today. Tabs A 15 through C in your notebook are all lottery retailer 16 matters I would like to take up together. These cases 17 are all recommended license revocations. These cases 18 were all presented at the State Office of Administrative 19 Hearings for revocation on the grounds the licensee 20 failed to have sufficient funds available to cover 21 electronic fund transfers to the Commission's account. 22 The Administrative Law Judge recommends 23 revocation in each of these cases, and staff recommends 24 that you vote to approve the order in each case, 25 revoking the license. If you approve, I have a single 59 1 mass order that covers all three of these cases. 2 CHAIRMAN WILLIAMSON: All right. Thank 3 you. 4 Commissioners, do you have any questions 5 of Bob on these? 6 COMMISSIONER DELGADO: No. 7 CHAIRMAN WILLIAMSON: Is there a motion, 8 please? 9 COMMISSIONER KRAUSE: I make a motion that 10 we adopt the recommendation of the Administrative Law 11 Judge in his report. 12 CHAIRMAN WILLIAMSON: Is there a second? 13 COMMISSIONER DELGADO: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 COMMISSIONER DELGADO: Aye. 18 CHAIRMAN WILLIAMSON: The motion passes 19 3-0. 20 AGENDA ITEM NO. XVI 21 CHAIRMAN WILLIAMSON: At this time I move 22 the Texas Lottery Commission go into executive session 23 to deliberate the duties and evaluation of the Executive 24 Director, Internal Audit Director, to deliberate 25 appointment, employment, duties and/or evaluation of the 60 1 Acting Charitable Bingo Director and to deliberate the 2 duties of the General Counsel and Human Resources 3 Director, pursuant to Section 551.074 of the Texas 4 Government Code, to deliberate the appointment, 5 employment and/or duties of the Charitable Bingo 6 Operations Director, pursuant to Section 551.074 of the 7 Texas Government Code, and to receive any legal advice 8 regarding any pending or contemplated litigation, 9 pursuant to the sections as cited forth in this 10 executive session notice. 11 So is there a second? 12 COMMISSIONER DELGADO: Second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER DELGADO: Aye. 17 CHAIRMAN WILLIAMSON: Vote is 3-0. We are 18 in executive session at 11:25. 19 (Off the record for executive session: 20 11:25 a.m. to 11:58 a.m.) 21 AGENDA ITEM NO. XVII 22 CHAIRMAN WILLIAMSON: The Texas Lottery is 23 out of executive session. The time is 11:58 a.m. And 24 there is no action to be taken as a result of executive 25 session. 61 1 AGENDA ITEM NO. XVIII 2 CHAIRMAN WILLIAMSON: So is there a notion 3 to adjourn? 4 COMMISSIONER KRAUSE: Yes, motion to 5 adjourn. 6 CHAIRMAN WILLIAMSON: Is there a second? 7 COMMISSIONER DELGADO: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 COMMISSIONER DELGADO: Aye. 10 CHAIRMAN WILLIAMSON: Motion passes 3-0. 11 The Texas Lottery Commission is out of session. It is 12 11:58. 13 (Meeting adjourned: 11:58 a.m.) 14 15 16 17 18 19 20 21 22 23 24 25 62 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 15th day of January 2013. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/14 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 1016 La Posada Drive, Suite 294 Austin, TX 78752 22 512.474.2233 23 Job No. 106527 24 25