1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 REGULAR MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § 9 10 11 COMMISSION MEETING 12 Wednesday, April 16, 2014 13 14 15 BE IT REMEMBERED THAT on Wednesday, the 16th 16 day of April, 2014, the Texas Lottery Commission meeting 17 was held from 10:00 a.m. until 1:27 p.m., at the Offices 18 of the Texas Lottery Commission, 611 East 6th Street, 19 Austin, Texas 78701, before CHAIRMAN J. WINSTON KRAUSE, 20 and COMMISSIONERS KATIE DICKIE STAVINOHA, JODIE G. 21 BAGGERTT, and MARY ANN WILLIAMSON; that the following 22 proceedings were reported via machine shorthand by Lou 23 Ray, a Certified Shorthand Reporter. 24 25 2 1 APPEARANCES 2 CHAIRMAN: Mr. J. Winston Krause 3 COMMISSIONERS: 4 Ms. Katie Dickie Stavinoha Ms. Jodie G. Baggett 5 Ms. Mary Ann Williamson 6 GENERAL COUNSEL: 7 Mr. Robert F. Biard 8 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 9 CHARITABLE BINGO OPERATIONS DIRECTOR 10 Ms. Sandra K. Joseph 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, WEDNESDAY, APRIL 16, 2014 ............. 6 4 I. The Texas Lottery Commission will call the meeting to order .............................. 6 5 II. Report, possible discussion and/or action 6 on Commissioner training, including ethics, administrative procedure, and open government 7 laws pertaining to the Texas Lottery Commission .................................... 6 8 III. Report by the Charitable Bingo Operations 9 Director and possible discussion and/or action on the Charitable Bingo Operations 10 Division’s activities, including updates on licensing, accounting and audit activities, 11 pull-tab review, and special projects ......... 9 12 IV. Consideration of and possible discussion and/or action, including adoption, on new 13 16 TAC §402.211 Other Games of Chance ......... 27 14 V. Consideration of and possible discussion and/or action, including adoption, on 15 Petitions of K&B Sales Inc. and Dept. of Texas Veterans of Foreign Wars for Adoption 16 of Rule Changes to 16 TAC §§ 402.300 Pull-Tab Bingo, 402.321 Card-Minding 17 Systems – Definitions, 402.322 Card-Minding Systems – Site System Standards, 402.323 18 Card-Minding Systems – Device Standards, and 402.325 Card-Minding Systems – Licensed 19 Authorized Organizations Requirements ......... 18 20 VI. Consideration of and possible discussion and/or action on external and internal 21 audits and/or reviews relating to the Texas Lottery Commission, and/or on Internal Audit 22 activities .................................... 33 23 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 VII. Report, possible discussion and/or action on lottery sales and revenue, game 4 performance, new game opportunities, advertising, market research, trends, and 5 game contracts, agreements, and procedures .................................... 35 6 VIII.Report, possible discussion and/or action 7 on transfers to the State ..................... 41 8 IX. Consideration of and possible discussion and/or action on the agency’s Strategic Plan 9 for FY 2015 – 2019 ............................ 42 10 X. Report, possible discussion and/or action on agency major contracts, including review 11 and approval, on the contract for drawing studio and production services ................ 44 12 XI. Report, possible discussion and/or action on 13 agency prime contracts, including amendments on the contract for drawings studio and 14 production services ........................... 46 15 XII. Report, possible discussion and/or action on HUB and/or minority business 16 participation, including the agency’s Fiscal Year 2013 Minority Business Participation 17 Report ........................................ 46 18 XIII.Report, possible discussion and/or action on the 83rd Legislature, including implementation 19 of legislation ................................ 52 20 XIV. Report, possible discussion and/or action on GTECH Corporation ............................. 55 21 XV. Report by the Executive Director and/or 22 possible discussion and/or action on the agency’s operational status, agency 23 procedures awards, and FTE status ............. 55 24 25 5 1 TABLE OF CONTENTS 2 PAGE 3 XVI. Consideration of the status and possible entry of orders in: ........................... 65 4 Lottery NSF License Revocation Cases (Default) 5 Docket No. 362-14-1221 – Four Star Quick Pantry Docket No. 362-14-1222 – Super Food Mart 42 6 Docket No. 362-14-1397 – McCart Gas & Food Mart Docket No. 362-14-1398 – Ramsey Food Mart #1 7 Docket No. 362-14-1399 – Super 7 Docket No. 362-14-1749 – Dinos Destiny 8 Docket No. 362-14-2261 – Southmore Market Docket No. 362-14-2262 – The Double Ox 9 Grocery & Cafe Docket No. 362-14-2263 – Shop N Go Food Store 10 Other Lottery Revocation Cases 11 J. Docket No. 362-13-4691 – All American Grocery 12 Lottery Agreed Orders 13 K. Case No. 2014-167 – Timewise Food Store #1901 L. Docket No. 362-14-2056 – Jack’s Grocery 14 Bingo Agreed Orders 15 M. Docket No. 362-14-2482.B – S&S Bingo, Inc. N. Docket No. 362-14-2483.B – William T. 16 Smith, III. O. Case No. 2013-812 – Fortunet, Inc. 17 18 XVII.Public comment .......................... NOT HEARD 19 XVIII. Executive Session ........................... 71 20 XIX. Return to open session for further deliberation and possible action on any 21 matter discussed in Executive Session ......... 72 22 XX. Adjournment .................................... 72 23 REPORTER'S CERTIFICATE ............................. 74 24 25 6 1 P R O C E E D I N G S 2 WEDNESDAY, APRIL 16, 2014 3 (10:00 a.m.) 4 AGENDA ITEM NO. 1 5 CHAIRMAN KRAUSE: Good morning. The Texas 6 Lottery Commission meeting for April the 16th, 2014 is 7 in session. Regardless of what the clock says up there, 8 it is ten o'clock. We have Commissioners Baggett, 9 Stavinoha and Williamson present; Townes is not here. 10 We have a quorum. 11 AGENDA ITEM NO. II 12 CHAIRMAN KRAUSE: We're going to start off 13 with a report because we have a quote-unquote new 14 Commissioner. And so, Bob, are you going to train us 15 today? 16 MR. BIARD: Yes. Thank you, Chairman. 17 Good morning, Commissioners. For the record, I'm 18 Bob Biard, General Counsel. Whenever there is a new 19 Lottery Commissioner, the agency has a tradition of 20 briefly reviewing the laws that govern the Texas Lottery 21 Commission at that Commissioner's first Open Meeting. 22 In addition, the Commission's sunset legislation 23 requires new appointees to complete a training program 24 before they may vote, deliberate or be counted as a 25 member in attendance at a Commission meeting. The 7 1 training program must provide the new appointee with 2 information regarding the legislation that created the 3 Commission, the program functions, rules and budget of 4 the Commission, the results of the most recent formal 5 audit of the Commission, the requirements of laws 6 relating to open meetings, public information, 7 administrative procedure and conflicts of interest and 8 any applicable ethics policies. 9 I have made this presentation three times 10 in the past year. And, in addition, our new 11 commissioner is a previous Lottery Commissioner, who the 12 public record shows, has extensive experience with the 13 laws governing this Commission. So my presentation 14 today will be very brief. 15 Prior to this meeting. Commissioner 16 Williamson did receive all the information required by 17 the statutory training provision and has met with Gary 18 Grief, Sandy Joseph, Kathy Pyka the controller, and 19 myself. I provided you a document titled "Guide to 20 Ethic Laws for State Officers and Employees." This is a 21 publication from the Texas Ethics Commission. Though 22 the Lottery Commission has a number of additional 23 requirements, we've annotated it using blue ink to 24 highlight specific provisions for the Lottery 25 Commission. And these provisions are generally more 8 1 restrictive than the requirements that apply to other 2 state agencies. It discusses restrictions on accepting 3 gifts, employment or remuneration from a person that has 4 a significant financial interest in the lottery, which 5 is a defined term that includes vendors and retailers 6 licensed to sell lottery tickets; or the bingo side, the 7 commercial lessor, distributor, or manufacturer. It 8 also discusses the unique restriction against political 9 fundraising that only applies to Commissioners of this 10 agency. 11 On the administrative side, Commissioner 12 Williamson has been provided information regarding the 13 Texas laws governing contested cases and rulemaking 14 proceedings, open meetings and public information. And 15 she has already completed the Attorney General's online 16 training on the Open Meetings Act and Public Information 17 Act. 18 The one new thing I will mention since 19 Commissioner Williamson was last here, is that as of 20 September 1st the Lottery Commission is a five-member 21 board, which means three commissioners are required for 22 a quorum, and there must be at least three commissioners 23 present in order to conduct business at an Open Meeting. 24 That also means two commissioners can meet and discuss 25 public business without violating the Act, but there is 9 1 an important caveat to that. The attorney general and 2 the Texas courts have held it would be a violation of 3 the Open Meetings Act to deliberately have a series of 4 two-commissioner meetings with different commissioners 5 to decide a matter of public business outside the public 6 (inaudible). That is referred to as a walking quorum 7 and is not allowed. Of course this is very fact 8 specific and is a question of intent, but this is a new 9 situation I want you to be aware of. 10 There's a lot of information covered by 11 the ethics and procedural laws that apply to the 12 Commission. So, as always, to Commissioner Williamson 13 and all the Commissioners, please feel free to contact 14 me or anyone in the Legal Division if you ever have a 15 question about these laws or how they apply. 16 Thank you. 17 CHAIRMAN KRAUSE: Outstanding. 18 COMM. WILLIAMSON: Thank you. 19 AGENDA ITEM NO. III 20 CHAIRMAN KRAUSE: Next we're going to hear 21 from our Charitable Bingo Operations Director. 22 MS. JOSEPH: Good morning, Commissioners. 23 In addition to what's in your notebook, I have some 24 additional information for you. As you know, agency 25 staff has been working diligently on the development of 10 1 the new bingo operating system referred to as the BOS 2 system. Funding and capital budget authority for this 3 was approved in 2014-15 biennium to redesign the current 4 system, which is used daily by agency staff for 5 administration and management of the charitable bingo 6 program. 7 A major component of developing a new 8 system involves a detailed business process review and 9 analysis. In layman's terms, we must be sure that we 10 are conducting all of our business processes in 11 compliance with existing statutes, rules, agency 12 policies and procedures. 13 Similarly, we need to ensure that all of 14 our rules, policies and procedures are not in conflict 15 with each other or in conflict with statutes. These 16 issues must be fully addressed before we can ask a 17 vendor to begin programming a new back-office system for 18 bingo. 19 Bingo staff is now deep into this review 20 and analysis, and thus far we've identified a number of 21 modifications needed to the Bingo Division processes, 22 procedures, administrative rules and how the accounting 23 of some licensing transactions are recorded by division 24 staff in the current bingo system. We are viewing this 25 as an opportunity to greatly improve the operation of 11 1 the Bingo Division. A number of bingo procedures and 2 business practices identified as needing modifications 3 appear to have been in place since bingo was first 4 regulated at the State Comptroller of Public Accounts in 5 the 1980's. 6 As I reported to each of you in my regular 7 communications with you, our review thus far has 8 indicated no evidence or suggestion of intentional 9 wrongdoing or fraud. I believe it's important to 10 emphasize this fact and get it on the record. 11 Gary and I have met on the work that needs 12 to be done on this project, and I'm glad to say we're 13 taking an approach that this is an agency project. The 14 entire agency has gotten behind the Bingo Division. The 15 Legal Division, the Office of the Controller, the 16 Administration Division and Governmental Affairs have 17 all been extremely helpful thus far. 18 Gary has also recently offered us the 19 services of Ed Rogers, our Enforcement Division 20 director, to assist us in looking at our bingo licensing 21 business practices, bringing his more than 20 years of 22 experience with lottery licensing to bear on this 23 project. 24 We've obtained confirmation from the 25 Comptroller of Public Accounts and the Legislative 12 1 Budget Board regarding our authority to transfer capital 2 budget funding authority between fiscal years of the 3 biennium. This would be required should there be 4 project delays this fiscal year. The Comptroller's 5 Office has also provided counsel regarding certain 6 business transactions and their conformance to 7 Comptroller guidelines. 8 As we move through the project, I will 9 keep the Commission informed as to any funding issues 10 for the BOS system. Our funding for this project 11 expires at the end of the biennium August 31st, 2015. 12 This agency-wide effort will take time due to the 13 significant level of manual review that is required. 14 Although making the modifications 15 necessary may put us behind in our schedule to roll out 16 the new BOS system, it's critically important that we 17 take the necessary time to ensure our processes are in 18 order and in sync with applicable state laws before 19 moving forward. 20 Additional administrative rulemaking will 21 be required as well. And as always, rulemaking will be 22 brought before the Commission for consideration and 23 action. As is our practice, we will seek stakeholder 24 involvement on the drafting of any new rules required. 25 Likewise, any changes made to our business processes 13 1 will be communicated to our licensees in a timely manner 2 and with appropriate notice. 3 Once we have completed our analysis and 4 made the necessary modifications to the Bingo Division 5 business processes, procedures and rules, we will seek 6 outside support from the State Auditors' Office. We 7 will request delegated audit services from the State 8 Auditors' Office in order to ensure that all changes 9 made to bingo procedures and business processes are 10 appropriate and adequate and audited by a third party. 11 In addition, our internal audit form, 12 McConnell & Jones, is serving in an advisory capacity, 13 and we have greatly appreciated their assistance as 14 well. 15 Commissioners, that concludes my report on 16 this matter. I'd be happy to answer any questions. 17 Internal auditor Darlene Burn (sic) is available at this 18 time to provide her report on this project if you would 19 like to hear from her. 20 CHAIRMAN KRAUSE: Please. 21 MS. BROWN: Good morning. As just 22 reported, as part of the BOS implementation project, 23 internal audit has been involved in looking at the 24 internal controls and business processes to make sure 25 that everything being put into the new system is aligned 14 1 with statutes, administrative rulings and also general 2 accounting principles. In this process it's been 3 identified that current business practices are not 4 necessarily always in alignment with those three. So as 5 a result, some changes are going to be needed to be 6 made. But it's very important to note that so far, from 7 what we've seen in doing the walk-throughs and doing 8 some sample testing of ledger accounts, that we don't 9 see any intentional wrongdoing or misappropriation of 10 funds. 11 It's also important to note this has been 12 identified as a bingo issue. It has no relationship to 13 the lottery information system. It's strictly related 14 to the bingo information system. 15 So in that manner, what we're doing is, 16 from the internal audit side, we're drafting a matrix of 17 all the administrative rulings, statutes and accounting 18 principles and aligning those up with business processes 19 to identify which ones need to be changed. And we're 20 going to help the bingo management in getting those 21 changed, and we're going to provide advisory and quality 22 assurance during this process. 23 Are there any questions? 24 CHAIRMAN KRAUSE: Commissioners. 25 COMM. WILLIAMSON: You know, you guys are 15 1 talking about can you give us a little -- a few 2 specifics on some of the things that -- in going through 3 this that you have found that -- you know, being in 4 business, I know when you go and do a review like this, 5 it is going to be an incredible time consuming thing 6 with your staff and how you're keeping up with your 7 normal business activities. So can you just kind of 8 give us a brief -- Just a few. I don't need a long 9 list, but just so we kind of have a sense on what sort 10 of things that have come up. 11 MS. JOSEPH: I can give you some examples. 12 COMM. WILLIAMSON: Okay. 13 MS. JOSEPH: One would be the over -- 14 accounting for overpayments and underpayments of license 15 fees. Another would be the accounting for temporary 16 license fees and amendments; the application and 17 accounting of escrow accounts, which are statutorily 18 allowed to be established by licensed, authorized 19 organizations; also the applications of license and bond 20 refunds; the accounting of bonds and the processing of 21 applications and renewals. Those are some of the 22 highlights thus far. 23 COMM. WILLIAMSON: Sounds like that 24 everybody is going to have a lot on their plate in 25 trying -- 16 1 MS. JOSEPH: Definitely. 2 COMM. WILLIAMSON: -- to deal with this. 3 You know, have y'all thought about generally how we're 4 going to manage this? 5 MS. JOSEPH: Yes. We have been working 6 with a team, as I mentioned in my remarks a minute ago. 7 We have pulled together resources of the entire agency 8 and have been methodically trying to look at what's 9 involved. So we're -- we're moving ahead, yeah. 10 COMM. WILLIAMSON: Good. And I'm aware 11 bingo -- the activity has been in several different 12 agencies over the years. Do we have any knowledge that 13 this has ever been looked at before in the past, the 14 whole -- the processes that are in place now? 15 MS. JOSEPH: Not to this extent; we're not 16 aware of that. 17 COMM. WILLIAMSON: Good. I know it's a 18 necessary thing to do before we can implement BOS 19 properly. So I commend everyone so for in what they've 20 done and appreciate what you're going to be dealing with 21 in the future. 22 That's all I have. 23 CHAIRMAN KRAUSE: All right. 24 COMM. STAVINOHA: Sandy, can you tell me 25 how extensive the rules that you're saying that need to 17 1 be modified or introduced is going to be, or a sense of 2 that? 3 MS. JOSEPH: Well, some items have already 4 been identified as requiring rulemaking. As we continue 5 we think we'll -- we may identify additional rules, but 6 it does appear that significant rulemaking will be 7 needed to properly amend, perhaps, some of our rules, 8 and on others just to put into rulemaking what the 9 policy is going to be for handling these accounts. But 10 as I stated earlier, we'll seek stakeholder involvement 11 in this as we proceed with current -- drafting rules. 12 CHAIRMAN KRAUSE: Darlene, can you tell us 13 if any of this is material or not? 14 MS. BROWN: It is immaterial from a 15 financial standpoint, but it's -- from a business 16 process, it's material in that almost all of your 17 business processes need to be updated. That monetarily 18 wise is very immaterial. 19 CHAIRMSN KRAUSE: All right. Well, it 20 sounds like this is a good thing, that bringing in this 21 new system let's us get to scrub this up. 22 MS. BROWN: Correct. Correct. 23 CHAIRMSN KRAUSE: Outstanding. All right: 24 Thank you very much. 25 18 1 AGENDA ITEM NO. V 2 CHAIRMAN KRAUSE: We're going to take an 3 item out of order. We're going to go ahead and go on to 4 V since it seems to be pretty popular today. 5 And, James Persons? 6 MR. PERSON: Good morning, Mr. Chairman, 7 Commissioners. This Agenda Item is actually two 8 different rulemakings. So if it's okay with you, I can 9 address each rulemaking separately, and I'll start with 10 the proposed amendments to Rule 402.300, which is the 11 rule that governs pull-tab bingo. 12 Back in January, the Commission received 13 rulemaking petitions from K&B Sales and the VFW 14 requesting amendments to this particular rule. The 15 Administrative Procedure Act expressly permits members 16 of the public to make such petitions. The decision on 17 whether to adopt the requested amendments, however, 18 still, obviously, rests with the Commission. 19 The two primary purposes of the requested 20 amendments are to allow multi-play pull-tab tickets, and 21 to authorize video confirmation for instant pull-tab 22 tickets. And a multi-play ticket is just a ticket with 23 two or more chances to wind a prize. 24 Obviously, the big issue regarding this 25 rule is the video confirmation. Video confirmation for 19 1 instant pull-tab tickets involves a player using some 2 type of electronic device to reveal whether the ticket 3 is a winner or not. The method used to reveal whether 4 the ticket is a winner or not has no impact on the 5 outcome of the game, however. And this is not a new 6 concept. 7 Back in 2007 our rules -- since 2007 our 8 rules have permitted video confirmation for event 9 pull-tab tickets. These rule amendments would just 10 expand that function to cover instant pull-tab tickets. 11 I do want to stress there will be no 12 electronic pull-tab tickets under this rule. All 13 pull-tab tickets must still be constructed out of paper, 14 and video confirmation is only one method of revealing 15 whether a ticket is a winner. The rules will require 16 that there be alternative, more traditional methods of 17 revealing that. Also all video confirmation methods 18 must still be approved by the Commission and they may 19 not -- the rule is explicit on this -- may not simulate 20 a slot machine or any other casino-style game. 21 Some minor modifications were made to the 22 rule language as it was originally proposed. First, the 23 proposed amendments originally included language that 24 would prohibit a multiple-part ticket from awarding more 25 than $750 as prize. That language conflicted with 20 1 another one of our rules that treated each part of a 2 multiple-part ticket as a separate ticket. So we 3 modified the language in the proposed -- in the 4 amendments to this rule so that the $750 limit applies 5 to each part. Two other minor changes were made. One 6 to change a definition, and one to correct a grammatical 7 error. 8 We received several comments addressing 9 this rule proposal, with most comments being in support 10 of the amendments. We have received one comment in 11 strong opposition to the proposed amendments, however. 12 The principal argument appears to be that these rule 13 amendments would authorize electronic bingo, which some 14 have likened to slot machines. 15 The Attorney General's office has declared 16 that electronic bingo is not permitted under the state 17 constitution. We recognize this. We respect that. 18 Under this proposal, however, a player 19 would not be playing the game on an electronic device. 20 There would be no electronic pull-tab tickets. There 21 will obviously be some electronic element if video 22 confirmation is used. But as the Attorney General has 23 also recognized, video confirmation alone does not 24 transform bingo into electronic bingo. 25 So on a strictly legal analysis, the 21 1 proposed amendments will not result in electronic bingo 2 or otherwise expand gambling. Should you decide to 3 proceed with adopting these amendments, staff believes 4 that you would be on firm legal ground. 5 So legally there really isn't an issue, 6 but the perception that these video confirmation methods 7 equate to slot machines is still out there. As I 8 understand it, there will be some player interaction 9 with the video confirmation devices, pushing button and 10 what-not. But this player interaction has zero impact 11 on whether the ticket is a winner. 12 So they aren't playing bingo on these 13 devices. The paper ticket is still determinative. 14 There are no electronic tickets. 15 And to help alleviate this possible 16 perception issue, the rule expressly prohibits video 17 confirmation methods that simulate slot machines or any 18 other casino-style games. And all video confirmation 19 methods must still be approved by the Commission. So if 20 a particular method does resemble a slot machine, we can 21 reject it. 22 Video confirmation was originally approved 23 by the Commission back in July of 2011 for event 24 pull-tab tickets. And as I previously noted, this 25 current rulemaking would just expand the function to 22 1 cover instant pull-tab tickets. The same arguments 2 against today's rulemaking were originally made back in 3 2007 when the Commission considered the video 4 confirmation for event tickets. 5 The commenter also raises some issues 6 involving gaming on Indian tribal land. And I just want 7 to be clear, if adopted, these rules will not expand 8 gambling on the land of the three tribes in Texas. 9 The commenter also claimed that the 10 proposed amendments will authorize an activity that was 11 rejected by the Legislature several times in the past. 12 There have been numerous bills addressing 13 electronic pull-tab bingo filed in the Legislature over 14 the past several years, but all that legislation was 15 designed to do was to authorize electronic pull-tab 16 tickets. And as I've stressed several times, the 17 proposed amendments here do not allow for electronic 18 tickets or the playing of tickets on an electronic 19 device. 20 The player is not playing the ticket on 21 the machine. They are merely revealing whether they won 22 or not in a fun and exciting manner. Some players may 23 believe their interaction with the video device somehow 24 affects the outcome, but that is not reality. 25 And that is my presentation. I'll be 23 1 happy to answer any questions on this particular 2 rulemaking. 3 CHAIRMAN KRAUSE: Commissioners? 4 COMM. WILLIAMSON: Thank you. I think you 5 explained that incredibly well -- factually. Thank you. 6 COMM. STAVINOHA: No questions. 7 CHAIRMAN KRAUSE: When did the comment 8 period end on this? 9 MR. PERSON: It was 30 days after 10 proposed, so it was back in the end of March, I believe. 11 CHAIRMAN KRAUSE: Okay. End of March. 12 And how many written comments during the written comment 13 period did we get? 14 MR. PERSON: Let me see here. I have that 15 for you. We received written comments from one, two -- 16 over a dozen. And -- 17 CHAIRMSN KRAUSE: And if there was one 18 against, that means there were 11 for. 19 MR. PERSON: Yes, sir. 20 CHAIRMAN KRAUSE: All righty. Did y'all 21 have a public meeting where people could come comment? 22 MR. PERSON: We did. 23 CHAIRMAN KRAUSE: What happened there? 24 MR. PERSON: Several people attended the 25 public hearing, all in support of the rule. 24 1 CHAIRMAN KRAUSE: A hundred percent, huh? 2 Okay. 3 And I note that today we have six witness 4 affirmation requests, people wanting to testify, five 5 are for and one is against. And so please remind us who 6 asked for this rule? 7 MR. PERSON: The VFW and K&B Sales. It 8 was their petition. This was not a staff-driven 9 rulemaking. 10 CHAIRMAN KRAUSE: Okay. And so here we 11 are responding to the people we regulate and wanting to 12 listen to their desires. It looks like they're the ones 13 that are really interested in this. And so in order to 14 be a regulatory agency that's not oppressive, we're open 15 to it. 16 So now is Nelda here? 17 MS. TREVINO: Yes. 18 CHAIRMAN KRAUSE: We have received -- I 19 have received -- the Commission has received 20 communications from several legislators. And so in view 21 of the fact that we studiously honor the statute and our 22 Attorney General opinions, the fact that we've heard 23 from our legislators is making us want to consider this 24 rule at another time. 25 Now, because the people who regulate are 25 1 interested in it, we are not going to make it go away, 2 but we're going to defer it. Bingo has got bigger fish 3 to fry right now with the implementation of a 4 long-awaited operating system. And, again, we want to 5 be good regulators, and as a result of that we're going 6 to focus on that first and then we'll come back to this 7 at a later date. 8 Now, the reason why I'm interested in 9 talking about the comment period is because all of the 10 negative that's come out here recently has been really 11 only in the last week or so, way after the comment 12 period. Now we're going to give everybody a mulligan 13 and open the comment period up again at a later time. 14 But what I'm asking going to ask you-all to do is that 15 since we're following the rules on how to make rules and 16 offer these comment periods, if you've got something in 17 opposition, please, please, give us your comments during 18 the comment period. It's only fair to us, because 19 that's what we have to rely on; that's what law says, 20 and we're following the law. 21 So we want your input. Please give it to 22 you us. Please give it to us in the right way. 23 Now, we're not going to take action on 24 this today, and so we're not going to take any testimony 25 as a result of that. And so there we have it. Anybody 26 1 else have any comment? 2 COMM. WILLIAMSON: No. Is this an action 3 item though even if we don't do anything? 4 MR. BIARD: You're not required to take 5 action. If you're prepared to withdraw the rule from 6 consideration, you can direct the staff to do that. 7 Otherwise, it will expire of its own statutory limit 8 period on August 28th, I believe. 9 CHAIRMAN KRAUSE: We can restart it later. 10 MR. BIARD: Would you like us to withdraw 11 the rule from the -- right now or just -- 12 CHAIRMAN KRAUSE: Well, we're not going to 13 act on it. 14 MR. BIARD: Okay. 15 CHAIRMAN KRAUSE: If it needs to expire, 16 let it expire on its own. 17 MR. BIARD: So there being just no action? 18 CHAIRMAN KRAUSE: No action today. 19 Alrighty. 20 COMM. WILLIAMSON: Can I make a comment? 21 CHAIRMAN KRAUSE: Absolutely -- 22 MR. BIARD: And there's a separate 23 proposal under this item as well. 24 COMM. WILLIAMSON: Right. I just -- at 25 least it's been my experience while I've been here at 27 1 this agency, we are very aware of what our charge is 2 here. And we are very aware we have no desire to expand 3 gaming of any kind. That is not our charge. That's a 4 policy decision made by the Legislature, not by us. 5 And any inference otherwise I find rather 6 disingenuous. Because, like I said, as long as I've 7 been here, that has never been the case. That is -- the 8 staff is always very aware of that, and as Commissioners 9 we are extremely aware of that. 10 So that's all the comment I have. Thank 11 you. 12 CHAIRMAN KRAUSE: The place to deal with 13 this issue is up at the Legislature. We're going to 14 follow what the Legislature says. 15 So I think you also have Item No. IV. 16 MR. PERSON: I have Item IV, but we have 17 the second rulemaking still on Agenda Item V. There 18 were two separate rulemakings. 19 CHAIRMAN KRAUSE: Well, let's just pull 20 the whole thing -- 21 MR. PERSON: Okay. 22 CHAIRMAN KRAUSE: Let's go to IV. 23 AGENDA ITEM NO. IV 24 MR. PERSON: Okay. So Agenda Item IV. At 25 the February 13th Commission meeting you voted to 28 1 propose new Rule 402.211, which will be entitled Other 2 Games of Chance. Section 2001.416 of the Bingo Enabling 3 Act generally restricts what games of chance may be 4 conducted during a bingo occasion. That statute also 5 mandates that the Lottery Commission adopt rules to 6 implement that restriction. This new rule accomplishes 7 just that. 8 In conjunction with the statute, the rule 9 will prohibit games of chance during a bingo occasion at 10 the premises except for charitable bingo, obviously, 11 charitable raffles, door prize games and amusement 12 machines that are not gambling devices. Those 13 prohibitions -- or exceptions to the prohibitions are 14 set in statute. This new rule would not expand that in 15 any way. 16 The rule will define game of chance to 17 include those games that award a prize and whose outcome 18 is determined at least in part by the element of chance. 19 We received a comment requesting that the definition of 20 game of chance be narrowed so that it would only 21 incorporate those games involving the elements of 22 consideration, chance and prize. And as you may know, 23 games that involve those three elements are considered 24 lotteries or, more generically, gambling. 25 We declined to accept that comment because 29 1 we do not believe it is in line with the plain language 2 of the statute and applicable Attorney General opinion. 3 The statute and rule explicitly permit 4 amusement machines that are not gambling devices to be 5 played during a bingo occasion. And as I explained when 6 this rule was first brought up for proposal, the 7 question of whether a particular machine qualifies as a 8 gambling device is not that clear cut. And many courts 9 and law enforcement agencies have come to different 10 conclusions on that subject. 11 The result is that the laws governing 12 these types of machines are not being enforced 13 consistently throughout the state. With that being the 14 case, we believe that it would be prudent for Commission 15 staff to rely on a court or local prosecuting attorney 16 to first determine that a particular device qualifies as 17 a gambling device before we pursue an administrative 18 violation. 19 We received a few comments requesting 20 modifications to the original proposed language, and I 21 think there may have been some confusion with our intent 22 and what the rule would ultimately do. There was a 23 thought that an indictment alone would be determinative 24 of whether a machine was a gambling device for purposes 25 of our rule. That is not the case. And the rule 30 1 language has been modified to clarify that. 2 Under the rule, if an indictment or other 3 charging instrument is filed and that indictment alleges 4 that a particular machine is a gambling device, then 5 Commission staff may begin the process of pursuing a 6 rule violation. A licensee will still have the 7 opportunity to contest the violation at an 8 administrative hearing, and the Commission will make the 9 ultimate decision on whether a violation occurred. 10 The rule's also modified so that the staff 11 can use court orders as well as charging instruments and 12 indictments when deciding whether to pursue a rule 13 violation. 14 Finally, as proposed, the rule would have 15 forbid the awarding of bingo equipment or entering into 16 a bingo game as a prize for any game of chance other 17 than bingo. We received several comments requesting 18 that this prohibition also provide exceptions for 19 raffles and door prizes. And after some review, we 20 accepted this comment and the rule language now forbids 21 the awarding of bingo equipment or entering into bingo 22 games as a prize for a game of chance other than bingo, 23 raffles and door prizes. No other game of chance may 24 award those types of prizes. 25 For those charities that award these 31 1 prizes, the rule will now also require that there be 2 adequate documentation of the prizes in their bingo 3 occasion records. 4 And before closing, I would like to note 5 that this new rule is in no way connected to the 6 petition rulemakings for video confirmation and card 7 minding systems. They are completely separate issues. 8 One of the comments we received lumped all 9 these rules together and claimed that they would lead to 10 electronic bingo. Those comments were obviously 11 addressed in the previous agenda item. But I do want to 12 stress that this rule has nothing to do with those 13 rules. 14 And with that, Staff is recommending that 15 the Commission adopt 402 -- new Rule 402.211 with the 16 changes I've outlined, and I'm happy to answer any 17 questions. 18 CHAIRMAN KRAUSE: Commissioners? 19 COMM. WILLIAMSON: James, generally what I 20 understand from this is we're just formalizing actually 21 what we already have in place in terms of practice. 22 MR. PERSON: Yes, ma'am, I believe so. 23 COMM. WILLIAMSON: So we already do this. 24 We're just putting it in a rule format, which will align 25 with what the statute says. Is that correct? 32 1 MR. PERSON: Correct. Yeah. I mean, the 2 statute mandates that we adopt a rule. 3 COMM. WILLIAMSON: Okay. 4 CHAIRMAN KRAUSE: Let's take some action. 5 Somebody want to give me a motion? 6 COMM. WILLIAMSON: I'll make a motion that 7 we adopt 16 TAC 402.211. 8 COMM. STAVINOHA: I'll second. 9 CHAIRMAN KRAUSE: All in favor say "aye." 10 (All those voting in favor so responded) 11 CHAIRMAN KRAUSE: Any opposed? 12 (No response) 13 CHAIRMAN KRAUSE: Carries back by 14 acclamation. 15 MR. BIARD: Commissioners, I'll just 16 clarify it was actually 2001.411 (sic) I do have an 17 order -- 18 COMM. WILLIAMSON: Okay. I apologize. I 19 think that's the first time I've made a motion. 20 CHAIRMAN KRAUSE: Well, it says 211 -- 21 COMM. WILLIAMSON: I know. I can't read 22 very well. 23 MR. BIARD: And I do have a rule order for 24 y'all to sign. 25 CHAIRMAN KRAUSE: You said it right. 33 1 COMM. WILLIAMSON: I did? Did I say it 2 right? 3 CHAIRMAN KRAUSE: Yeah. He said it's 411. 4 COMM. WILLIAMSON: What did I say? 5 CHAIRMAN KRAUSE: But you got it right. 6 MR. PERSON: It's 402.211. 7 COMM. WILLIAMSON: So I did say it right. 8 MR. BIARD: Oh, I'm sorry. I apologize. 9 My wrong. 10 CHAIRMAN KRAUSE: Go, girl. 11 COMM. WILLIAMSON: Okay. Thank you. I 12 thought, oh, man, I messed up the first barrel out of 13 the bag. 14 AGENDA ITEM NO. VI 15 CHAIRMAN KRAUSE: Let's go on to Item VI. 16 Ms. Brown? 17 MS. BROWN: Good morning again. I'm 18 presenting the internal audit status report today. And 19 so far our focus has been on assisting with the BOS 20 implementation. And we've also been keeping a 21 monitoring on the lottery service portal implementation 22 to make sure that things are staying on track and 23 internal controls are being designed in the systems. 24 We've also filed our required regulatory 25 reports for the audit plan and the 2013 annual audit 34 1 report. And right now, as of date, we still have 89 2 percent of our budget remaining. 3 And in the next period our audit 4 activities include -- we're going to continue to support 5 the bingo project. We're also going to kick off the 6 bingo allocation audit where we're going to look at the 7 processes around allocations. 8 We are also going to continue with LSP, 9 the lottery service portal implementation and BOS 10 implementation and begin our risk assessment for 2015 in 11 and designing the audit plan for 2015. 12 And finally, we're going to start the 13 sales -- the lottery ticket sales to state transfer fund 14 audit. We're going to be very busy during the next 15 quarter. Do we have any questions? 16 CHAIRMAN KRAUSE: Questions? 17 (No response) 18 CHAIRMAN KRAUSE: I just want to say that 19 I think your firm is doing a great job and we really 20 appreciate what you're doing. 21 MS. BROWN: Than you. 22 CHAIRMAN KRAUSE: Your perspective is good 23 for us and we're happy to have you. 24 MS. BROWN: Thank you. 25 35 1 AGENDA ITEM NO. VII 2 CHAIRMAN KRAUSE: Item VII, Ms. Pyka? 3 MS. PYKA: Good morning, Commissioners. 4 My name is Kathy Pyka, the controller for the 5 Commission. And with me is Robert Tirloni, our products 6 and drawings manager. 7 Commissioners, this morning our first 8 chart that we have for you reflects our comparative 9 sales through the week ending April 12, 2014. Total 10 fiscal year 2014 sales through this 32-week period are 11 $2,778,000,000, an increase of 69 and a half million 12 dollars or 2.6 percent, compared to 2,709,000,000 that 13 we had for this same time period last fiscal year. 14 Our fiscal year 2014 instant ticket sales 15 reflected on the second orange bar are $2,052,000,000, 16 which is $43.1 million increase over the sales figure 17 for last fiscal year. And our instant ticket sales 18 amount to 73.8 percent of total sales through this 19 period. 20 Our fiscal year 2014 draw sales reflected 21 on the second blue bar are at $726.7 million, which is a 22 $26.3 million increase over fiscal year 2013. 23 Commissioners, while we're reporting this 24 $26.3 million surplus through the current period, we're 25 respectful that we'll be faced with a year-over-year 36 1 comparison in May in which we had a Powerball jackpot 2 last fiscal year that reached $600 million. So we 3 recognize that we're facing some tough year-over-year 4 sales comparison in the next month. 5 Commissioners, our next slide includes the 6 cumulative average daily sales information for fiscal 7 years 2012, fiscal year 2013, and fiscal year 2014. The 8 overall sales -- overall daily average sales value for 9 fiscal year 2014 is $12.4 million. That's a $355,000 10 per day increase over fiscal year '13. And it's a 11 $793,000 per day increase over fiscal year 2012. 12 We'll focus first on our jackpot games, 13 which are highlighted with the white font. They reflect 14 an average daily total of $2 million for fiscal year 15 2014. That's a $257,000 increase over last fiscal year, 16 and it's a $10,000 decline from fiscal year 2012. 17 With the fifth category, we want to focus 18 first on our Mega Millions increase. We've got a nice 19 healthy increase over last fiscal year following our 20 December jackpot that reached $636 million. Powerball, 21 however, does reflect a decline of $133,000 22 year-over-year, which is attributed to that $550 23 thousand -- $550 million jackpot that we had last fiscal 24 year. 25 Our daily sales reflect a daily average of 37 1 1.24 million for the current fiscal year. This is a 2 $134,000 decrease from last fiscal year. We'd like to 3 note within this category our Daily 4 sales continue to 4 reflect year-over-year strong increases with a 14 5 percent increase over last fiscal year. 6 And we'll round up this slide with our 7 instant ticket sales that has a daily average of 9.15 8 million, which is an increase of $232,000 over last 9 fiscal year, and is just over a $700,000 increase over 10 fiscal year 2012. 11 So with that, Robert will now go over 12 actual sales by product. 13 MR. TIRLONI: Good morning, Commissioners. 14 For the record my name is Robert Tirloni. I'm the 15 products and drawings manager for the Commission. 16 So this is through last Saturday, April 17 12. Same format as the previous slide. The jackpot 18 games are at the top. So for fiscal year '14 over 19 fiscal year '13 we are experiencing an almost $56 20 million sales increase. Again, the bulk of that growth 21 is coming from the Mega Millions game, and again that is 22 because of some large jackpots experienced this current 23 fiscal year, the $636 million jackpot in December of 24 '13, and we also had a $400 million jackpot just about a 25 month ago in March of '14. 38 1 Powerball is experiencing a deficit. 2 Again, that's all jackpot driven. Powerball has just 3 not realized the higher jackpots this fiscal. And as 4 Kathy mentioned it was just about this time a year ago 5 that we began a roll cycle that built up to a $600 6 million advertised Powerball jackpot on May 18th. So 7 during that week, we did have a $61 million draw game 8 sales week. So without some big jackpots in -- here in 9 the next few weeks, unfortunately, we'll most likely, 10 next time we meet, see this number or this decrease get 11 larger. 12 In blue in the middle of the slide are our 13 daily games. Those are in a decline as a whole of $29 14 million. The bulk of that is coming from the All or 15 Nothing Game. You'll remember that was the game that we 16 had to suspend sales and then resume sales. That game 17 has been struggling a little bit since that occurred. 18 We continue to support that, quite a bit lately. We 19 actually have a promotion running on that game again now 20 to kind of continue to boost interest and awareness of 21 that game. Daily 4 continues to see growth. We're 22 seeing good growth from the Daily 4 product again this 23 fiscal year. 24 So draw games as a whole are up $26 25 million. Our instant product category continues to do 39 1 well. It's up just over $43 million. We're seeing very 2 good sales from our multiplier suite or -- we call it 3 the X the cash games. We've run out of inventory on 4 almost all of those and we've had to reprint, reorder, 5 and those are arriving now to be re-released. So we've 6 had some good sales success from that suite of games. 7 All told for the fiscal year '14 compared '13, the 8 portfolio as a whole is up just under $70 million. 9 I have one brief products update for you 10 today. I've given you samples of this ticket. You have 11 it up there. This is our new Texas Dream Home Game. 12 This game will start in about two weeks on April 28th. 13 We are the first jurisdiction in the country to be able 14 to offer a game that's awarding Home Depot gift cards. 15 So we're trying something new and something different 16 here, which we've talked about many times in this 17 setting. 18 This game offers those gift cards via 19 second chance drawings, which we've done for many, many 20 years. But it also offers finalists the opportunity to 21 go to a promotional event in Dallas at the end of the 22 game. And the winner of that -- or the finalist 23 selected at that even has the opportunity to receive 24 $500,000 to build a DR Horton dream home in a DR Horton 25 community in the State of Texas. So that's kind of new 40 1 also. 2 So we're happy about this relationship 3 that we've established with Home Depot for this game and 4 DR Horton for that matter, and we're looking forward to 5 seeing how this game does. 6 And that's the end of the presentation, 7 but we're happy to answer questions if you all have any. 8 CHAIRMSN KRAUSE: Questions? 9 COMM. WILLIAMSON: Just -- I think this is 10 a phenomenal new concept, and I think it will be real 11 interesting. As usual, Texas is in the forefront of 12 innovative products and thought along where we're headed 13 with our games and what we do. So I think it's rather 14 exciting actually. 15 MR. TIRLONI: We're excited about it as 16 well. My understanding is Home Depot was only willing 17 to do with this with about three jurisdictions, and we 18 were one of those three. So we jumped on the bandwagon, 19 and we're happy to be the first out of the gate. 20 CHAIRMAN KRAUSE: Who are the other 21 jurisdictions? 22 MR. TIRLONI: I believe it was Georgia and 23 I believe it was either -- I want to say Pennsylvania. 24 CHAIRMAN KRAUSE: Excellent. Comments? 25 Questions? 41 1 COMM. STAVINOHA: Nothing. 2 AGENDA ITEM NO. VIII 3 CHAIRMAN KRAUSE: All right. We'll move 4 on to the next action item. And, Ms. Pyka, if you would 5 just segue straight from 8 into 9 and do the whole 6 thing. 7 MS. PYKA: Certainly. So this is an 8 update for you, Commissioners, on the agency's transfers 9 to the state. Commissioners, while the notebook 10 includes the accrued revenue transfers to the Foundation 11 School Fund, the Texas Veterans Commission and the 12 allocation of unclaimed prizes through February 28th, we 13 have completed the revenue transfer for March, so I 14 wanted to provide you an update with the most recent 15 data. 16 So at this point out total accrued revenue 17 transfers to the state amount to $669.9 million through 18 the first seven months of fiscal year 2014. Of this 19 $669.9 million, 625.9 million was the amount of revenue 20 transferred to the Foundation School Fund. We 21 transferred 4.8 million to the Texas Veterans 22 Commission, with the balance of 39.2 million transferred 23 from unclaimed lottery prizes. Commissioners, this 24 represents a 5.7 percent increase, or $34 million, over 25 the total amount transferred to the Foundation School 42 1 Fund from sales last fiscal year during this same time 2 period. 3 So that gives us a total cumulative value 4 of transfers of $16.54 billion through the period of 5 March 31. That includes my presentation on revenue 6 transfers, I'm happy to answer any questions. 7 CHAIRMAN KRAUSE: Carry on. 8 AGENDA ITEM NO. IX 9 MS. PYKA: All right. So Tab 9 is our 10 strategic plan. I think Gary wanted to open it with a 11 few remarks. 12 MR. GRIEF: Good morning, Commissioners. 13 It's time once again for the agency to turn our 14 attention to the development of our agency's strategic 15 plan for the upcoming legislative session. Our 16 strategic plan will cover fiscal years 2015 to 2019. 17 And it's due to the Governor's Office of Budget and 18 Planning and also to the Legislative Budget Board by 19 July 7th. The management team has already begun the 20 drafting of our plan, and we are on schedule to provide 21 each one of you with a final draft for your review 22 around the end of May, with the expectation that we'll 23 be asking you in the Commission meeting scheduled for 24 June for your formal approval of our strategic plan. 25 One of the components necessary to 43 1 complete the strategic plan is the budget structure. 2 And that's the action item that Kathy has for you today, 3 and I'll ask her to lay that out for you. 4 MS. PYKA: So, Commissioners, this morning 5 the approval that I'm seeking is to modify our 6 Commission's strategic plan budget structure for the 7 period of fiscal years 2016 and 2017. This is basically 8 the starting point for the development of our biennial 9 budget request. So if we want to modify or delete or 10 change any of the structure elements, we're required to 11 submit a request to the Governor's Office of Budget and 12 Planning, as well as the Legislative Budget Board by 13 April the 28th. This session we don't have any changes 14 to the budget structure itself, but we do have a number 15 of changes to performance measure definitions. 16 So included in your notebook we've got a 17 listing of the 61 performance measures that we have here 18 in the agency, and we'd like to modify the definitions 19 for 39 of those measures. They're very basic measure 20 definition changes. Most of them relate to the change 21 in system titles with the bulk of those being the 22 modification from ACBS to BOS. On the lottery side 23 there's a few that relate to the ES gaming system. 24 So I've got the detail of those changes in 25 your notebook under Attachments A and B, and then we've 44 1 got the definitions under Attachment C. So, if you 2 approve, those we'll submit those to the Governor's 3 Office of Budget and Planning as well as the Legislative 4 Budget Board within their timeline that they've 5 outlined, and I'd be happy to answer any questions that 6 you might have. 7 CHAIRMAN KRAUSE: Questions? 8 This is an action item to approve the 9 Staff's recommendation. Do I hear a motion? 10 COMM. WILLIAMSON: I'll make a motion to 11 approve the changes. 12 CHAIRMAN KRAUSE: All right. Second? 13 COMM. BAGGETT: I'll second. 14 CHAIRMAN KRAUSE: All right. All in favor 15 say "aye." 16 (Those voting to approve so responded) 17 CHAIRMAN KRAUSE: All opposed? 18 (No response) 19 CHAIRMAN KRAUSE: Hearing no nays, then it 20 carries by acclamation. 21 MS. PYKA: Thank you, Commissioners. 22 AGENDA ITEM NO. X 23 CHAIRMAN KRAUSE: Mr. Fernandez? 24 MR. FERNANDEZ: Good morning, 25 Mr. Chairman, Commissioners. For the record, my name is 45 1 Mike Fernandez. I'm the Director of Administration. 2 Item X in your notebook is an action item. 3 This item is for the procurement of drawing studio and 4 production services, which is designated a major 5 contract. For this procurement, each of you have been 6 provided the evaluation committee's report and 7 recommendation, the draft contract and the negotiation 8 notes. If the Commission approves the committee's 9 recommendation, staff will then proceed to execute a 10 contract with the selected vendor. 11 If you have any questions, I would be 12 happy to answer. 13 CHAIRMAN KRAUSE: Questions? 14 (No response) 15 CHAIRMAN KRAUSE: All right. Is there a 16 motion to approve Mr. Fernandez's recommendation? 17 COMM. STAVINOHA: I will make that motion. 18 CHAIRMAN KRAUSE: Second? 19 COMM. BAGGETT: I second. 20 CHAIRMAN KRAUSE: All in favor say "aye." 21 (All those voting in favor so responded) 22 CHAIRMAN KRAUSE: Any opposed? 23 (No response) 24 CHAIRMAN KRAUSE: No opposition, it 25 carries. 46 1 Thank you, sir. 2 AGENDA ITEM NO. XI 3 CHAIRMAN KRAUSE: Next item is yours as 4 well. 5 MR. FERNANDEZ: Again for the record, my 6 name is Mike Fernandez, the Director of Administration. 7 Item No. XI in your notebook is a briefing 8 item only. The existing contract -- the current 9 existing contract for drawing studio and production 10 services is designated as a prime contract. This item 11 is to advise the Commission's of Staff's intent to amend 12 the contract to allow for changes in the studio set. 13 If you have any questions, I'd be happy to 14 answer them. 15 CHAIRMAN KRAUSE: Questions? 16 (No response) 17 CHAIRMAN KRAUSE: Thank you, sir. 18 MR. FERNANDEZ: Thank you. 19 AGENDA ITEM NO. XII 20 CHAIRMAN KRAUSE: Now we're going to hear 21 from our HUB coordinator. 22 MS. BERTOLACINI: Good morning, Chairman, 23 Commissioners. My name is Joyce Bertolacini. I am the 24 agency's Historically Underutilized Business 25 Coordinator, otherwise known as HUB Coordinator. 47 1 First, I'd like to provide a brief update 2 on our agency's HUB program for you this morning, 3 especially for those of you who are new. At the 4 beginning of the fiscal year, the agency set its annual 5 internal HUB goals as required by the Comptroller's HUB 6 rules. Also, in accordance with new legislation that 7 was effective on September 1st of 2013, the Comptroller 8 is now certifying service disabled veterans as HUBs. 9 The agency has taken steps to modify it's HUB 10 expenditure tracking system and reports to capture this 11 new category. 12 Another new legislative requirement, for 13 quarterly assessments of HUB-related activities also 14 went into effect on September 1st. And the first and 15 second quarterly reports for this fiscal year have been 16 submitted to the Comptroller in a timely fashion. 17 The TLC's mentor protege program is an 18 ongoing initiative to match HUB vendors with mentor 19 companies that can assist with specific business 20 development goals. Although the TLC does not currently 21 have any mentor protege relationships in place, we hope 22 to establish one or more relationships in the near 23 future. 24 And finally, the agency will soon be 25 planning its annual HUB forum, which will take place 48 1 this summer. So I'm just kind of getting started on 2 that. 3 The action item today is the fiscal year 4 2013 Minority Business Participation Report. And a copy 5 of the report has been included in your notebooks today. 6 This report, which is required by Section 466.107 of the 7 State Lottery Act must be made available annually to the 8 Governor, Lt. Governor, Speaker of the House and members 9 of the Legislature. The report requires your formal 10 approval prior to be being printed and published on the 11 TLC's website. 12 The current minority business 13 participation report documents the level of minority and 14 HUB participation in the agency's contracting activity 15 during fiscal year 2013. It also includes information 16 on the number of licensed minority retailer. During 17 fiscal year 2013, the agency achieved an overall 18 participation rate of 30.76 percent in its minority and 19 HUB contracting activity. 20 In addition, of the 18 largest spending 21 state agencies, the TLC ranked number one by overall HUB 22 percentage. Finally, during FY 2013, the agency had 23 7,857 minority retailers, which represented 45.94 24 percent of the Texas Lottery's total retailer base. 25 I'll be happy to answer any questions 49 1 regarding the report at this time. 2 CHAIRMAN KRAUSE: Commissioners? 3 COMM. WILLIAMSON: Joyce, for the benefit 4 of our new Commissioners, can you just give them briefly 5 sort of our history and our track record of our HUB 6 numbers? Yeah, I'm not going to put you on the spot and 7 say this year we were this percent, but just globally in 8 the last few years kind of where do we fall? 9 MS. BERTOLACINI: In the last few years I 10 believe we've kind of -- we kind of have leveled out in 11 the sort of 20 -- mid-20 percent range, 24, 25, 27. I'm 12 just kind of going off memory here. And so this 30.76 13 percent is probably -- represents more of a slight peak 14 for us. We kind of leveled out and now we're moving up 15 a little bit again. 16 And I will also tell you that the report 17 for the first six months of fiscal year '14 was just 18 released. I just looked at it this morning. And we're 19 kind of on track for the first six months we're also in 20 the 30 percent range. So I will say when we first -- 21 when I first started here we were far, far below 30 22 percent in our percentage. I don't remember exactly 23 what it was, but I think we're doing quite well with our 24 HUB percentages at this point. 25 COMM. WILLIAMSON: And then in comparison 50 1 once again because, you know, to get an appreciation for 2 the percentages and what that means, once again in 3 comparison with the other large agencies generally how 4 we've fallen within the last few years more or less? I 5 know it's fluctuated, but not a lot. 6 MS. BERTOLACINI: Yes. The way the report 7 is written, it ranks us by the amount of our total 8 percentage -- total expenditures that are captured by 9 the HUB report. And we've kind of -- we've dropped down 10 a bit in the last few years in terms of our total 11 expenditures captured by the HUB report. So a few years 12 back we used to be in like the top 15 spending agencies. 13 And as we've spent less money, we've dropped a little 14 bit down. 15 COMM. WILLIAMSON: Okay. We're not in the 16 top 15 anymore, we may be -- 17 MS. BERTOLACINI: We're in the top 19. 18 COMM. WILLIAMSON: Okay. 19 MS. BERTOLACINI: So we have looked at the 20 other agencies that have spent more money than we have, 21 and where we fall in relation with them, and we've been 22 No. 1, No. 3, No. 2. You know, we basically have been 23 in the top three for a fairly good percentage of time. 24 COMM. WILLIAMSON: Okay. Thank you. 25 CHAIRMAN KRAUSE: Questions? 51 1 COMM. STAVINOHA: No, thank you. 2 CHAIRMAN KRAUSE: Well, I was kind of 3 hoping that when LatinWorks became the successful 4 advertising bidder on our RFP that that would have a 5 dramatic effect. 6 MS. BERTOLACINI: I think it has had an 7 effect. It may not be as dramatic as you would have 8 wanted it to be perhaps -- 9 CHAIRMAN KRAUSE: Well, that's a pretty 10 big contract though. 11 MS. BERTOLACINI: It is a big contract. 12 CHAIRMAN KRAUSE: We don't get credit for 13 the whole thing? 14 MS. BERTOLACINI: We do, but our other 15 expenditures that are with our large contractors still 16 have a pretty dramatic effect on our numbers. I would 17 not sneeze at what's happened between last year and this 18 year. We've -- we've definitely shown that we're moving 19 up again. So, like I said, previously we were leveling 20 off and now I think we're showing an increase, which is 21 good. 22 CHAIRMAN KRAUSE: Any other comments? 23 (No response) 24 CHAIRMAN KRAUSE: All right. Well, this 25 is an action item, and so you have a recommendation for 52 1 us. 2 MS. BERTOLACINI: Yes. I would like to 3 recommend that we do -- that you approve the FY 2013 4 minority business participation report, and you should 5 have a cover letter there for your signature. 6 CHAIRMAN KRAUSE: Outstanding. Do we have 7 a motion? 8 COMM. WILLIAMSON: I make a motion that we 9 approve the 2013 HUB report. 10 CHAIRMAN KRAUSE: Second. 11 COMM. STAVINOHA: I'll second. 12 CHAIRMAN KRAUSE: All right. All in favor 13 say "aye." 14 (All those voting in favor so responded) 15 CHAIRMAN KRAUSE: Any opposed? 16 (No response) 17 CHAIRMAN KRAUSE: Carries by acclamation. 18 Thank you, ma'am. 19 MS. BERTOLACINI: Thank you, 20 Commissioners. 21 MR. BIARD: And, Chairman, I have a letter 22 for your signature. 23 CHAIRMAN KRAUSE: Excellent. 24 AGENDA ITEM NO. XIII 25 CHAIRMAN KRAUSE: Next item, Nelda 53 1 Trevino. 2 MS. TREVINO: Good morning, Mr. Chairman 3 and Commissioners. For the record, I'm Nelda Trevino, 4 the Director of Governmental Affairs. 5 As part of the sunset review process, the 6 Sunset Act requires the Sunset Advisory Commission to 7 review the implementation of Commission recommendations 8 and resulting legislation from the previous legislative 9 session. The review is designed to ensure that agencies 10 implement changes adopted by the Legislature through the 11 sunset process. 12 Sunset Advisory Commission staff is 13 scheduled to perform their compliance review on all the 14 agencies that were reviewed during the last cycle 15 sometime this fall between October and December. The 16 State Auditor's Office also participates to specifically 17 review the implementation of management recommendations 18 adopted by the Sunset Advisory Commission. It is 19 anticipated a compliance report will then be issued and 20 presented to the Sunset Advisory Commission in January 21 of 2015. 22 Executive management, along with other 23 agency staff, is reviewing the agency sunset bill 24 implementation tracking document in preparation for this 25 compliance review. There are no updates to provide 54 1 regarding the provision included in the agency sunset 2 legislation that establishes the ten member legislative 3 committee to study the impact of eliminating the state 4 lottery and aspects related to the distribution of 5 revenue for charitable bingo. 6 Lastly, I would just like to provide you a 7 brief update regarding the implementation of Senate Bill 8 1681, which relates to contract management and 9 oversight. As I reported at our meeting last June, this 10 bill amends the chapter in the Government Code regarding 11 statewide contract management and specific duties 12 related to the Comptroller of Public Accounts and the 13 Contract Advisory Team. 14 The bill includes a new provision that 15 requires the Comptroller to develop an abbreviated 16 contract management training program for members of 17 governing bodies at state agencies. All members of the 18 governing body of a state agency are required to 19 complete this abbreviated contract management training 20 course. We have recently provided responsive 21 information to the Comptroller's Office regarding the 22 Commission's governing body, and we will keep you 23 advised as the agency receive any information regarding 24 this training that you'll be required to take. 25 This concludes my report and I'll be glad 55 1 to answer any questions. 2 CHAIRMAN KRAUSE: Commissioners? 3 (No response) 4 CHAIRMAN KRAUSE: Thank you, ma'am. 5 MS. TREVINO: Thank you. 6 AGENDA ITEM NO. XIV 7 CHAIRMAN KRAUSE: Moving right along. 8 Mr. Grief, you've got two items. You're welcome to 9 handle them both. 10 MR. GRIEF: Very good. Thank you, 11 Mr. Chairman. On Item No. XIV, other than what's in 12 your notebook on the GTECH item, I have nothing further 13 to report. 14 AGENDA ITEM NO. XV 15 MR. GRIEF: And on Item XV, in addition to 16 what's in your notebook, I have several items to report 17 to you on today. 18 First, I'd like to provide you with an 19 update on the agency's implementation of the management 20 recommendation related to Sunset Issue 2.1 from the 21 Sunset Commission's final report. That particular 22 recommendation directed the Commission to improve the 23 way in which we collect and disseminate information 24 about contract sanctions, the outcomes of contract 25 negotiations, and contract closeout results. The 56 1 information about the first two, contract sanctions and 2 closeout results, are going to be provided to the 3 Commissioners on a quarterly basis beginning with the 4 quarter ending May 31st of this year. Those will go out 5 in your weekly packets. 6 On the information about negotiations for 7 all major procurements, that information is going to be 8 included in the actual procurement documentation that is 9 provided to each Commissioner for review prior to us 10 executing a particular contract. The timing for the 11 distribution of that information will be dependent upon 12 the time of the execution of a new contract for a major 13 procurement. 14 The next item I have to report to you on 15 is something I've talked about at past Commission 16 meetings, and that's the national premium game and 17 national TV game show. That initiative is being led by 18 the Multi-State Lottery Association or MUSL, as it's 19 known, of which Texas is now a full voting member. MUSL 20 issued a request for proposal some number of months ago 21 for a national premium game and national TV game show 22 concept and, after reviewing the proposals, entered into 23 discussions with a company called MDI Entertainment. 24 MDI is a wholly-owned subsidiary of Scientific Games, 25 which, as you know, is one of our three companies that 57 1 print scratch-off tickets for the Commission. 2 Those discussions and negotiations have 3 now yielded a new draw game that would be offered at a 4 $5 price point. That's a higher price point than 5 traditionally draw games are offered at. And the 6 introduction of that game is being contemplated around 7 the country for October of 2015. 8 Now, while I'm excited about the potential 9 for that new draw game, the most compelling feature of 10 this whole initiative is the national TV game show that 11 comes along with that. And the details surrounding both 12 the new draw game and the national TV game show are 13 still being fully developed. But there's an opportunity 14 here for lotteries to, on a national basis, gain the 15 additional visibility from the public through the medium 16 of TV that we haven't had in the past, and with the 17 bottom line being that we want to generate more money 18 for the good causes that al the state lotteries support. 19 At your next Commission meeting in June, 20 I've asked the staff from MDI to actually be here and 21 give you the full presentation in about a 45-minute time 22 duration of the national draw game and the national TV 23 game show. We want to be fully transparent in 24 presenting this to you and to the public. And at that 25 same Commission meeting, we plan to be ready to provide 58 1 you with rules for the national premium game that you 2 can consider for proposal at that time as well. 3 Commissioners, my next item involves 4 membership in the World Lottery Association or the WLA, 5 as it's known. This is another item that I've talked to 6 Commissioners about in past meetings. In the February 7 meeting, I briefed the Commission on my participation in 8 the WLA marketing event in London, their annual 9 marketing conference, and I provided you with detailed 10 conference information, as well as detailed information 11 about the WLA in general, in your notebooks during that 12 meeting. 13 To recap, the WLA is composed of 148 14 different lotteries, representing over 80 countries from 15 six continents around the world. Currently, 15 U.S. 16 lotteries are also members of WLA. 17 That conference in London, as I reported 18 to you in February, was an outstanding opportunity for 19 Texas. Following that conference, I reported to you 20 that I was approached by representatives from WLA about 21 Texas potentially joining that organization. And while 22 I believe that membership in the WLA would be extremely 23 beneficial to our state as the European lotteries, quite 24 frankly, are more advanced than U.S. lotteries and there 25 is much that we can learn from the European lottery 59 1 experience, the challenges and limitations related to 2 actually attending WLA meetings due to our state travel 3 guidelines and restrictions make it less than practical 4 to be a member of WLA. And I communicated that 5 information to the WLA. 6 After the WLA received that information 7 and went back and had a discussion with their 8 membership, they have now offered us and opportunity to 9 join WLA in a special membership that would include 10 certain travel reimbursable for the purpose of attending 11 WLA meetings. The total annual cost for this membership 12 would be $21,000, and my intent is to have the Texas 13 Lottery join the WLA for one year and then monitor the 14 benefits of that membership and reevaluate that at the 15 end of that one-year time period. 16 The next item I have to report to you 17 on -- unless you have questions on that, Commissioner. 18 It looked like you had a question. 19 CHAIRMAN KRAUSE: Well, I guess one 20 question would be when you -- when -- if joining this 21 gives us access to procedures, techniques, you know, 22 ideas that the European lotteries are employing that 23 might be a benefit to us, then, I mean, are those 24 copyrighted, patented? Are these things that we can see 25 but can't use unless we, I don't know, pay for them or 60 1 whatever? 2 MR. GRIEF: Lottery industry, although 3 it's global, is really a very small group of technology 4 providers and game providers at the current time. My 5 sense is that the answer to your question is no. I 6 think because we don't compete with other lotteries, 7 rather we work together to generate as much money in our 8 particular jurisdiction as we can -- there's not another 9 lottery in Texas, in other words, that's competing with 10 us -- that typically lotteries have been very free to 11 share ideas, patents, grant us licensing agreements to 12 use different aspects. 13 CHAIRMAN KRAUSE: Okay. So the membership 14 fee basically gives us an entry into, essentially, 15 expense free technology and ideas and -- 16 MR. GRIEF: Access to that and also what 17 I'm intrigued with are the security procedures that are 18 used in the European lotteries. They have a higher 19 level of security certification, if you will, that 20 they're allowed to grant. There are some lotteries in 21 the U.S. who have obtained that type of certification. 22 I think having that type of certification can serve this 23 lottery very well going forward for a number of years. 24 CHAIRMAN KRAUSE: Thank you. 25 MR. GRIEF: The next item that I wanted to 61 1 let you know about is that I was approached recently by 2 representatives from Camelot. They are the operator of 3 the UK lottery. That is one of the largest lotteries in 4 the world. It's approximately three times the size of 5 the Texas Lottery. I've established good business 6 relationships with some of the principals at Camelot 7 over the years. And they have offered, and I have 8 accepted their offer, to perform a one week engagement 9 with our Texas lottery team here at Texas lottery 10 headquarters the week of April the 28th. That 11 engagement is going to include a review of our business 12 practices, an attempt by them to provide us with some 13 high-level insights based on their experience in the UK, 14 and what I hope may be some recommendation as to what 15 they might see as potential opportunities for us to 16 increase revenue here in Texas. There will be no cost 17 to the Texas lottery for this engagement. 18 I believe that Camelot is offering these 19 services to us as a way of demonstrating to us, and 20 perhaps to others, what their level of competency is in 21 the U.S. lottery market, and I welcome the opportunity 22 to have them come in. 23 I'll move on unless you have questions. 24 CHAIRMAN KRAUSE: Questions? 25 (No response) 62 1 CHAIRMAN KRAUSE: Go ahead. 2 MR. GRIEF: My next item relates to my 3 ongoing duties as president of NASPL, the North American 4 Association of State and Provincial Lotteries. Coming 5 up the week of May 18th in Cleveland, Ohio, for the 6 first time, NASPL is going to be sponsoring an iLottery 7 development conference. And while Texas is definitely 8 and currently not involved in any iGaming activities, 9 there are several other state lotteries who are. 10 That conference is going to focus on 11 educating the lottery industry on new game design, 12 concepts and technologies, and will bring a host of 13 leading iGaming visionaries to the table with lotteries. 14 It's going to be an in-depth, two-day session featuring 15 speakers from both inside the lottery industry and 16 outside the lottery industry. We're going to cover 17 legal, technological product development and political 18 issues related to game development. And I'll be 19 welcoming and addressing the attendees to open the 20 conference in my role as NASPL president. 21 Also coming up is the La Fleur's symposium 22 and retailing summit in Washington, DC, the week of June 23 the 1st. This will be a gathering of several lottery 24 directors, senior management teams from lotteries, 25 vendor partners and representatives from our 63 1 retailer-partner side of the business; 7/Eleven for one 2 based here in Dallas is going to be in attendance. 3 Focus of this entire conference is going 4 to be how we can improve the way we interact with those 5 valuable retailer-partners, and ultimately, always, the 6 goal is to increase sales and revenue. I'll be serving 7 on a couple of different panels related to that subject 8 during that conference. 9 And finally, you've heard me talk about 10 these two conferences. You've heard me mention various 11 lottery conferences over time, and those have been held 12 at locations all around the country. I've been in 13 discussions over the last several months with many of 14 the sponsors. In fact, all of the sponsors of these 15 various conferences, and I've been working to try to 16 bring some of these conferences here to Texas, and I'm 17 pleased to announce that I've secured two of those for 18 our state. 19 The first will be the La Fleur's Lottery 20 Conclave. That's going to be held in November of this 21 year, 2014. It's going to be held here in Austin at the 22 Stephen F. Austin Hotel. And we expect about 200 23 attendees from around the country in the lottery 24 industry to attend. 25 And the second conference is the biggest 64 1 lottery conference in the world, and that is the annual 2 NASPL Lottery conference. That's going to be held in 3 October 2015 in Dallas at the Anatole Hotel. And we 4 expect to have well more than a thousand lottery 5 industry people from around the world, not just around 6 the country, in attendance at that event. 7 And as always, Commissioners, I'll be 8 keeping you in the loop on opportunities to attend these 9 conferences in the event that that's your desire. 10 Mr. Chairman, that concludes my report 11 this morning. I'll be happy to answer any questions. 12 CHAIRMAN KRAUSE: Questions? 13 COMM. WILLIAMSON: I just have one. You 14 may not able to answer this. What -- bringing a 15 conference like NASPL to a city, what does that -- in 16 dollars bringing into that city? Do you have any feel 17 at all for that? And if not, maybe next time we have a 18 meeting say this is about what they've done in the past 19 in other cities? 20 MR. GRIEF: I'll find that out for you. 21 COMM. WILLIAMSON: You know, if we're 22 bringing this to Dallas, what sort of economic benefit 23 is coming to Dallas as a result of this conference. 24 MR. GRIEF: Yes. 25 COMM. WILLIAMSON: And even here locally, 65 1 the one -- the smaller one here in town -- in Austin. 2 MR. GRIEF: I'll have numbers for both of 3 those for you. 4 COMM. WILLIAMSON: That would be great. 5 MR. GRIEF: Yes, ma'am. 6 CHAIRMAN KRAUSE: Any other questions? 7 (No response) 8 CHAIRMAN KRAUSE: We're going to take a 9 break. We're going to be breaking for about ten 10 minutes. It's 11:15 and we'll be back in ten minutes. 11 (Recess: 11:16 a.m. to 11:28 a.m.) 12 AGENDA ITEM NO. XVI 13 CHAIRMAN KRAUSE: It's 11:28. We're over 14 ten minutes, so we're back in session. 15 I repeat. 11:28, more than ten minutes. 16 We're back in session. 17 Anyway. Mr. Biard's going to lead us 18 through the enforcement actions. 19 MR. BIARD: Thank you, Commissioners. Tab 20 16 in your notebooks contains 15 lottery and bingo 21 enforcement matters. These are cases where Commission 22 staff found a violation, and most of the time either the 23 lottery or bingo licensee failed to appear at the 24 hearing, or the staff and the licensee reached a 25 settlement. I'll briefly describe the cases, and if you 66 1 like you can take them up in a single vote. There's 2 one -- one I want to pull out and discuss separately. 3 It's a little different. 4 The first nine cases, Tabs A through I are 5 nonsufficient funds lottery retailer license 6 revocations. They're handled in a single order. These 7 cases were presented at the State Office of 8 Administrative Hearings for revocation of the retailer's 9 license on the grounds the licensee failed to have 10 sufficient funds in their banking account to cover 11 electronic fund transfers to the Lottery Commission. 12 The Administrative Law Judge recommends 13 revocation in each of those cases, and the staff 14 recommends that you vote to approve the order in each 15 case revoking the license. 16 Tab J, I'm going to pull that out and 17 discuss that last. That's the different one. 18 Tabs K and L are lottery agreed orders, 19 and Tab K it was a situation where the retailer sold 20 lottery tickets to two minors in violation of the 21 Lottery Act and agreed to a 10-day suspension. 22 And Tab L the retailer had sold a customer 23 more tickets than the customer asked for. It was a 24 difference between $6 an $54 dollars, and the customer 25 didn't have the money. So the retailer wouldn't cancel 67 1 the sale and required payment by credit card, which is a 2 violation. So the retailer has agreed to a ten-day 3 suspension in that case. 4 Tabs M through O are bingo agreed orders. 5 M and N are related. S&S Bingo, William T. Smith. Mr. 6 Smith is a registered bingo worker and bingo hall 7 manager and S&S Bingo is the commercial lessor that 8 leases the premises at the bingo hall. And on several 9 occasions together these two respondents allowed the use 10 of price schedules that advertised the possibility of 11 more than $2500 in prizes during a single bingo 12 occasion, which is a violation. There's no evidence 13 that more than $2500 in prizes was ever awarded 14 Mr. Smith has agreed to a hundred dollar penalty, and 15 S&S Bingo has agreed to a warning letter. 16 Tab O is Fortunet, Inc. This is -- 17 Fortunet is a -- a license manufacturer of bingo 18 supplies. This is agreed order for $25,000. It's a 19 $19,000 penalty and a $6,000 reimbursement. Fortunet is 20 the manufacturer. In June 2012 their 100 percent 21 shareholder purchased a loan and security interest in 22 all the assets of one of its chief competitors, which 23 was another being manufacturer, which was in excess of 24 $16 million. 25 In November 2012, the competitor 68 1 surrendered its license, but the acquisition by Fortunet 2 of that loan and security interest was a violation of 3 the Act because you -- one manufacturer is not supposed 4 to own an interest in another manufacturer, at least 5 they -- an officer, director or 10 percent greater 6 shareholder -- is not supposed to own an equitable or 7 credit interest in another manufacturer. So they agreed 8 to that penalty, and that's an agreed order. 9 Tab J I wanted to pull out separately. 10 It's a license revocation case where staff is 11 recommending that you not accept the ALJ's 12 recommendation for a 20-day suspension. In this case, 13 our investigators went to the retailer and found the 14 lottery inventory was being stored in an unsecure 15 manner. At the store tickets were found in boxes on the 16 floor, open boxes, game packs were found sealed and 17 unsealed on the floor, loose single tickets were found 18 in the bins behind the counter, loose tickets were on 19 the counter available to customers. We had received 20 over, I think, eight reports of stolen tickets within 21 about a two-year period. 22 Our investigators went out there and, you 23 know, advised the retailer that they needed to comply 24 with our security requirements. Went back a couple 25 months later and nothing had changed -- oh, it was also 69 1 the case that this retailer was storing inventory in his 2 residence and in his vehicle. So when the investigators 3 went back out and nothing had changed, we had the SOAH 4 proceeding. We recommended revocation. 5 The Administrative Law Judge felt like 6 this was -- this may have been a violation of security 7 requirements, but it really didn't affect the integrity 8 of the lottery and recommended a 20-day suspension. Our 9 staff very strongly feels that that 20-day suspension 10 will not deter the behavior, so the staff continues to 11 recommend revocation. And because we're disagreeing 12 with the ALJ's recommendation, we have prepared our own 13 order explaining why and our rationale for rejecting the 14 judge's recommendation. 15 So those are all of the enforcement cases. 16 And unless you'd like to have questions or change the 17 recommendation -- the vote on any of those, you can 18 handle those in one vote if you like. 19 CHAIRMAN KRAUSE: Questions? 20 (No response) 21 CHAIRMSN KRAUSE: Okay. A question I've 22 got is on the Fortunet you said that it's a violation of 23 statute for one manufacturer to own a security interest 24 in the assets or another. Does that include (inaudible) 25 acquisitions? Or are you just (inaudible)? 70 1 MR. BIARD: I don't think -- you know, I'm 2 not quite sure how that's handled. Do you have any 3 idea? 4 CHAIRMAN KRAUSE: Maybe that's 5 (inaudible). 6 THE REPORTER: Chairman, you don't have 7 your mic on. 8 CHAIRMAN KRAUSE: I am sorry. Do we have 9 to start over again? 10 THE REPORTER: No, I got it. 11 MR. BIARD: I don't think this is 12 intended -- I mean, because that's essentially what 13 ended up happening here is the one company took over the 14 other. I think if it was a direct acquisition -- I 15 think there's probably a way to accommodate that under 16 just regular business -- 17 CHAIRMAN KRAUSE: -- a creeping 18 acquisition. 19 MR. BIARD: I think -- yeah. I think this 20 is more of an anti-competitive -- you don't want -- sort 21 of a trying to prevent sort of a monopoly. 22 CHAIRMAN KRAUSE: A linking? 23 Any other comments? Questions? 24 (No response) 25 CHAIRMAN KRAUSE: I am looking for a 71 1 motion from somebody that is approving the staff 2 recommendation on A through O, except J, which we 3 were -- which would be to reject the ALJ recommendation 4 and approve the Staff's recommendation on that. Anybody 5 want to make a motion like that? 6 COMM. WILLIAMSON: I make a motion based 7 on what you exactly said. 8 CHAIRMAN KRAUSE: Second? 9 COMM. STAVINOHA: I second it. 10 CHAIRMAN KRAUSE: All in favor say "aye." 11 (Those voting in favor so responded) 12 CHAIRMAN KRAUSE: Any opposed? 13 (No response) 14 CHAIRMAN KRAUSE: Hearing no nays, it 15 carries. 16 MR. BIARD: Thank you. I have orders that 17 I will bring y'all to sign shortly. 18 AGENDA ITEM XVIII 19 CHAIRMAN KRAUSE: Outstanding. At this 20 time I move that the Texas Lottery Commission go into 21 executive session to deliberate personnel matters 22 including appointment, employment, evaluation, 23 reassignment, duties, discipline, dismissal, of the 24 Executive Director and the Charitable Bingo Operations 25 Director, and duties of General Counsel and/or Human 72 1 Resources Director, all pursuant to Section 551.074 of 2 the Texas Government Code, as well as to receive legal 3 advice. 4 Is there a second? 5 COMM. WILLIAMSON: Second. 6 CHAIRMAN KRAUSE: All in favor say "aye." 7 (All those voting in favor so responded) 8 CHAIRMAN KRAUSE: Vote carries. It is, 9 according to AT&T 11:37 and we're going into executive 10 session. 11 (Recess: 11:37 a.m. to 1:26 p.m.) 12 AGENDA ITEM NOS. XIX & XX 13 CHAIRMAN KRAUSE: The Texas Lottery 14 Commission is out of executive session. It is 1:26 p.m. 15 There is no official action to be taken as 16 a result of executive session and, therefore, I believe 17 that we have concluded all the business of the 18 Commission for this meeting. 19 Is there a motion to adjourn? 20 COMM. WILLIAMSON: So move. 21 CHAIRMAN KRAUSE: Second? 22 COMM. STAVINOHA: Second. 23 CHAIRMAN KRAUSE: All in favor say "aye." 24 (Those voting in favor so responded) 25 CHAIRMAN KRAUSE: Any opposed? 73 1 (No response) 2 CHAIRMAN KRAUSE: Carries 4/0. We are 3 adjourned. 4 (Proceedings concluded at 1:27 p.m.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 74 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lou Ray, Certified Shorthand Reporter 5 in and for the State of Texas, do hereby certify 6 that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, 10 later reduced to typewritten form under my 11 supervision and control and that the foregoing pages 12 are a full, true, and correct transcription of the 13 original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 25th day of April, 2014. 16 17 _______________________________ 18 LOU RAY Certified Shorthand Reporter 19 CSR No. 1791 - Expires 12/31/15 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 7800 N. Mopac, Suite 120 Austin, Texas 78759 22 512.474.2233 23 24 25