1 1 2 3 4 5 TEXAS LOTTERY COMMISSION 6 7 8 COMMISSION MEETING 9 10 11 February 4, 2016 12 13 10:00 a.m. 14 15 AT 16 17 TEXAS LOTTERY COMMISSION 18 19 611 East 6th Street 20 21 Austin, Texas 78701 22 23 24 25 2 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera Peggy A. Heeg 5 GENERAL COUNSEL: Bob Biard 6 7 EXECUTIVE DIRECTOR: Gary Grief 8 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Alfonso D. Royal, III 9 10 ADMIN. DIVISION DIRECTOR: Michael R. Fernandez 11 CONTROLLER: Katheryn J. Pyka 12 ASSISTANT GENERAL COUNSEL: Kristen N. Guthrie 13 McCONNELL JONES 14 LANIER & MURPHY, LLP: Darlene Brown 15 PRODUCTS & DRAWINGS MANAGER, 16 LOTTERY OPERATIONS DIVISION: Robert Tirloni 17 MEDIA RELATIONS DIRECTOR: Kelly Cripe 18 --oo0oo-- 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 Page 3 PROCEEDINGS, THURSDAY, FEBRUARY 4, 2016............. 7 4 I The Texas Lottery Commission will call the meeting to order................................ 7 5 II. Report, possible discussion and/or action on 6 lottery sales and revenue, game performance, new game opportunities, advertising, 7 promotional activities, market research, trends, and game contracts, agreements, and 8 procedures...................................... 12 9 III. Report, possible discussion and/or action on transfers to the State and the agency's budget 10 status.......................................... 43 11 IV. Consideration of and possible discussion and/or action, including readoption, on the 12 review of the Commission's rules set forth in 16 TAC Chapter 402, relating to Charitable 13 Bingo Operations Division....................... 45 14 V. Consideration of and possible discussion and/or action, including readoption, on the 15 review of the Commission's rules set forth in 16 TAC Chapter 401, relating to Administration 16 of State Lottery Act............................ 48 17 VI. Consideration of and possible discussion and/or action on illegal gambling activities at 18 Commission-licensed lottery ticket sales locations and/or by Commission-licensed bingo 19 operators....................................... 50 20 VII. Report, possible discussion and/or action on agency major contracts, including the renewal or 21 procurement for the contract on internal audit services........................................ 54 22 VIII.Report, possible discussion and/or action on 23 agency major contracts, including amendment, renewal or extension on the contract for 24 advertising services............................ 58 25 4 1 TABLE OF CONTENTS 2 Page 3 IX. Report, possible discussion and/or action on external and internal audits and/or reviews 4 relating to the Texas Lottery Commission, and/or on Internal Audit activities.................... 59 5 X. Report by the Charitable Bingo Operations 6 Director and possible discussion and/or action on the Charitable Bingo Operations Division's 7 activities, including licensing, accounting and audit activities, pull-tab review, and special 8 projects........................................ 60 9 XI. Report by the Executive Director and possible discussion and/or action on the agency's 10 operational status, major contracts, agency procedures, awards, and FTE status 11 GUEST SPEAKER KATHY MATSON, IGT VICE-PRESIDENT OF INSTANT TICKET SERVICES.. 7 12 XII. Consideration of the status and possible 13 approval of orders in Enforcement cases........ 63 14 Lottery NSF License Revocation Cases (Default 15 Unless Otherwise Noted) 16 A. Docket No. 362-16-0605 - Novedades Aryle B. Docket No. 362-16-0606 - Fast Stop Grocery 17 18 Lottery Agreed Orders 19 C. Case No. 2016-46 - Star Stop Food Mart # 15 D. Case No. 2016-67 - Messina's Liquor #3 20 21 Bingo Revocation Cases 22 E. Docket No. 362-15-5367.B - Houston Spring Branch Lions Club 23 F. Docket No. 362-15-3088.B - American Legion Post 271 (Motion for Rehearing) 24 G. Docket No. 362-15-4136.B - VFW Post 4146 Victoria, Conductor (Motion for Rehearing) 25 5 1 TABLE OF CONTENTS 2 Page Bingo Agreed Orders 3 H. Case No. 2015-1175- Joshua R. Aguilar, Jr. 4 (Bingo Worker) 5 Tabs I-K, Agreed Orders Regarding East Plano Bingo Hall: 6 I. Docket No. 362-15-1667.B - Jerry Stobaugh (Bingo Worker) 7 J. Docket No. 362-15-1668.B - Willie Jenkins (Bingo Worker) 8 K. Docket Nos. 362-15-1666.B, 362-15-3696.B - East Plano Bingo, Inc. (Commercial Lessor) 9 XIII.Public Comment.................................. 10 XIV. Commission may meet in Executive Session........114 11 A. To deliberate personnel matters, including 12 the appointment, employment, evaluation, reassignment, duties, discipline, or dismissal 13 of the Executive Director and/or the Charitable Bingo Operations Director pursuant to 14 Section 551.074 of the Texas Government Code. 15 B. To deliberate the duties of the General Counsel and/or the Human Resources Director 16 pursuant to Section 551.074 of the Texas Government Code. 17 C. To receive legal advice regarding pending 18 or contemplated litigation or settlement offers, or other legal advice, pursuant to 19 Sections 551.071(1) and (2) of the Texas Government Code, including but not limited to 20 legal advice regarding the following items: Pending and potential litigation regarding 21 Fun 5's Scratch Ticket Game #1592, including but not limited to Travis Co. District Court 22 Cause No. D-1-GN-14-005114 (Steele, et al. v. GTECH Corp.); 23 Dallas Co. District Court Cause No. DC-14-14838 (Nettles v. GTECH Corp. 24 and Texas Lottery Commission); and El Paso County Court Cause 25 No. 2014-DCV-4113 (McDonald v. GTECH Corp.), Rasche, et al. V. Lane, et al. 6 1 TABLE OF CONTENTS 2 Page (U.S. District Court for the Northern 3 District of Illinois), State of Texas v. Equal Employment 4 Opportunity Commission, et al. Legal advice regarding the State Lottery 5 Act, Texas Government Code Chapter 467, the Bingo Enabling Act, the Open Meetings 6 Act, the Administrative Procedure Act, employment law, personnel law, procurement 7 and contract law, evidentiary and procedural law, and general government law. 8 Legal advice regarding any item on this open meeting agenda. 9 XV. Return to open session for further 10 deliberation and possible action on any matter posted for discussion in Executive Session. 11 Any matter posted for Executive Session also may be the subject of discussion and/or 12 action in open session prior to Executive Session.........................................115 13 XVI. Adjournment.....................................115 14 REPORTER'S CERTIFICATE...............................116 15 --oo0oo-- 16 17 18 19 20 21 22 23 24 25 7 1 AGENDA ITEMS I and XI 2 CHAIRMAN KRAUSE: Good morning. I'm 3 calling to order the meeting of the Texas Lottery 4 Commission. It's February 4th, 2016 at exactly 5 10:00 o'clock a.m. I've got a full Commission. I'm 6 proud we're all here. We have a quorum. 7 We always start our meetings with the 8 pledge of allegiance to the United States flag and to 9 the Texas flag, so please stand. 10 (Pledges.) 11 CHAIRMAN KRAUSE: We're going to take an 12 item out of order right away and call on our Executive 13 Director, Gary Grief. 14 AGENDA ITEM XI 15 EXECUTIVE DIRECTOR GRIEF: Good morning, 16 Chairman and Commissioners. 17 This is actually a line item on the 18 report. I believe that's item number -- what is that, 19 Bob -- IX or X? I don't have anything to report this 20 morning other than what's in your notebooks today, but 21 we do have a special guest with us. 22 Kathy, I would like for you to come up 23 and sit down, if you would. 24 (Ms. Matson complies.) 25 MS. MATSON: Good morning. 8 1 EXECUTIVE DIRECTOR GRIEF: Commissioners, 2 this is Kathy Matson. She was recently named 3 Vice-President of Instant Ticket Services for IGT 4 Printing, one of the three companies that we use to 5 print our scratch tickets. And although Kathy has only 6 recently been appointed to her current position, she has 7 quite a long history in the industry and a history with 8 Texas as well. And I'll let Kathy speak. 9 MS. MATSON: Thank you. 10 Good morning, Mr. Chairman, 11 Commissioners, Mr. Grief, my colleagues, and former 12 colleagues and former people I've worked for and with 13 in the past. It's great to be here, back in Texas 14 again. 15 I'm with IGT, formerly GTECH. And, as 16 Gary said, maybe I might be the person with the longest 17 history in the lottery business in this room. I started 18 in 1985 with the Oregon lottery, back at the startup; 19 and it was a crazy time. For any of you that were here 20 when Texas started up in 1992, it's exciting; it's fun. 21 It gets in your blood, and I don't think it ever gets 22 out. 23 So I worked with the lottery and then 24 went to the instant ticket printing side of the 25 business, and that's kind of my special area of 9 1 expertise is printing. And even though I'm with IGT, 2 you know, which is a global company; and we do lots and 3 lots of things, my focus is on the instant ticket, 4 though. 5 I was recently promoted to 6 Vice-President. It's kind of fun. I report directly to 7 Mike Chambrello. He is our CEO, President; and I 8 believe he's been in front of the Commission before. I 9 think you all know who he is. He's based in Providence. 10 I'm based in Lakeland, Florida; and 11 that's where our printing facility is where we print 12 lots and lots of tickets for the Texas lottery. We also 13 print for lotteries all over the world. So it surprises 14 people when I say we print for Slovakia and Germany and 15 Italy and Nicaragua. And we print them all at our 16 Lakeland facility, and we ship them out. 17 Also, we have a global sales team that's 18 located there, been all over the world; and that now 19 kind of falls under my realm of responsibility. So in 20 my new role now, I oversee marketing globally, sales, 21 and innovations. And that's a big piece of what we do. 22 We dedicate a lot of money to research and development. 23 Innovation recently kind of mirrors what 24 is happening in the Texas lottery in your current 25 contract with instant tickets because this is kind of an 10 1 unusual arrangement that happened several years ago. 2 It's been great for the industry. Texas is a 3 trendsetter by having contracts with multiple vendors. 4 So all the three major instant ticket 5 printers all have the availability to print in Texas, 6 which means the lottery can take advantage of everything 7 that we have to offer. It's still a competitive 8 business, and we all have different proprietary products 9 and services that we can offer to the lottery. So it's 10 kind of nice for the lottery now to be able to take 11 advantage of that and be able to choose from all vendors 12 kind of the best of the best and get our insight on 13 what's going on in the world and how we can help each 14 other better. 15 So just a couple of examples of some of 16 the innovation that we've done with the Texas lottery 17 recently, you might have already seen the Super Ticket 18 that went on sale last year, an innovation that was 19 brought to the lottery. The first lottery in the world 20 to do the Super Ticket was Texas, to resounding success; 21 and we're going to bring it back again in the spring. 22 So that will be a product line out there. 23 And Super Loteria is another one of the 24 innovations that our team, in working in collaboration 25 with the Texas Lottery Instant Team, put together a line 11 1 extension of a very, very successful Loteria ticket at 2 the five-dollar price point; and this is really doing 3 very, very well. 4 So there's a couple of examples of the 5 innovation that we've been able to achieve through 6 collaboration with the Texas Lottery and our contract 7 there. So that's it unless you have any questions for 8 me. 9 I just wanted to say thank you for 10 inviting me here today. It's a pleasure to be back in 11 Texas. I don't know if I mentioned this: I lived in 12 San Antonio for ten years. So I miss Texas. I like 13 Florida, but I miss Texas. 14 (Laughter.) 15 MS. MATSON: And I invite any of you if 16 you are ever in Florida to come visit our facility. 17 Lakeland is right in the middle, like, between Tampa and 18 Orlando. And it's a pretty exciting place. If you've 19 never been to a printing facility for instant tickets, 20 we're giving you the opportunity to come by; and we'd 21 love to give you a tour. 22 CHAIRMAN KRAUSE: Commissioners, any 23 questions for this witness? 24 (Laughter.) 25 MS. MATSON: Thank you. 12 1 CHAIRMAN KRAUSE: Hearing none, thank you 2 for coming today. 3 We have some big, big news. We're going 4 to hear next from Kathy Pyka about our big, big news. 5 AGENDA ITEM II 6 EXECUTIVE DIRECTOR GRIEF: If I could, 7 Mr. Chairman, I would like to introduce this segment. 8 And thank you for letting us take our 9 sales and revenue item early on in today's meeting. 10 As you all know, generating revenue for 11 the Foundation School Fund, that's our mission here at 12 the Texas Lottery; and our entire team is always 13 dedicated to finding opportunities to generate even more 14 money for public education in Texas. And that 15 dedication has been demonstrated by the fact that record 16 amounts of revenue have been delivered to public 17 education by the Lottery for the past four fiscal years. 18 And I'm very confident that when we end our fiscal year 19 this next August, we will, once again, set another new 20 record. 21 So this morning's presentation on sales 22 and revenue, we've modified that a bit from the usual 23 format that you're used to seeing in an effort to inform 24 the Commission and also the public of the impact that 25 the record 1.5-billion-dollar Powerball Jackpot had, not 13 1 just on Texas and the Foundation School Fund, but on the 2 entire world. 3 All of our current-slated Commissioners, 4 with the exception of Chairman Krause, who came on board 5 just last year, in their very first Commission meeting 6 last August, they were asked to adopt a change to the 7 Powerball game, a change that took place just last 8 October. And that is a game change that I had been 9 working on for more than two years leading up to that 10 meeting. I want to touch briefly on the rationale 11 behind why we changed the Powerball game and what 12 exactly changed at that time. 13 Everyone that's familiar with the lottery 14 industry is painfully aware that over the last few years 15 we had seen sales from multistate games, Mega Millions, 16 and Powerball, slowly wane over time. The reason for 17 that drop in sales is simple. It was the lack of 18 attractive, large jackpots. 19 That lack of jackpots eventually turned 20 into jackpot fatigue, that phenomenon we're all familiar 21 with, where players and the media, quite frankly, become 22 bored of seeing jackpots that they've seen before. They 23 want to see new numbers out there. That jackpot fatigue 24 phenomenon then translates to ever-decreasing sales for 25 the state lottery all around the country. 14 1 Now, the impact that Powerball sales has 2 on any particular state's overall revenue, that varies 3 dramatically from state to state; but I want to explain 4 how it impacts Texas. It's all a function of what 5 percentage of your overall sales are draw game sales and 6 then of those draw game sales, what percentage of those 7 are Powerball sales. 8 Well, in Texas, Powerball sales comprise 9 about 5 percent of our overall sales. That may not 10 sound like a very significant percentage; but, in truth, 11 those sales are critically important to our success 12 because that 5 percent, just like the 4 or 5 percent 13 that Mega Millions contributes, those are the most 14 variable parts of our Texas Lottery revenue stream. And 15 what I mean by that is that I can almost plot out for 16 you from now until the end of the fiscal year what sales 17 are going to be for every other game in our portfolio, 18 draw and scratch. 19 What I can't predict for you, though, is 20 what jackpots and the corresponding sales will be for 21 Mega Millions and Powerball. And that's why, when I'm 22 out speaking around the country about the lottery 23 industry, representing either the Multi-State Lottery 24 Association, MUSL, or the North American Association of 25 Lotteries, I regularly refer to Powerball and Mega 15 1 Millions as the difference-makers for us here in Texas. 2 What I mean by that is even though those 3 games make up a relatively small percentage of the 4 overall sales, those games are: A, more profitable for 5 us than most of our other games and, B, the revenue that 6 those particular games generate typically makes the 7 difference in whether we have a record year of revenue 8 for the Foundation School Fund or not. And that is very 9 important to your team here at the Texas Lottery, and 10 it's why it's important that we keep such a focus in the 11 future on both those particular games. 12 So back when the Multi-State Lottery 13 Association started deliberating potential changes to 14 the Powerball game a couple of years ago, it was 15 painfully obvious to me the Powerball game needed a 16 change to the matrix to the numbers that were used to 17 draw. We saw the playing population for Powerball, the 18 number of people in the states who play Powerball 19 increase from 129 million in 2009 to 307 million by 20 2015; that was as a result of all the states who sold 21 Powerball or Mega Millions agreeing to sell both games 22 at that period of time. 23 At the same time, we went backwards in 24 odds for the top prize. The odds were 1 in 195 million, 25 and we changed those odds to 1 in 175 million. And that 16 1 change occurred at the same time that we increased the 2 price for a Powerball ticket from $1 to $2. 3 After many months of research and 4 numerous meetings and deliberations, the members of the 5 Powerball Committee were finally ready to introduce 6 major changes to the Powerball game. We needed to do 7 that to keep the game relevant, quite frankly. 8 Nationwide consensus was final reached 9 among the 37 decision-making states in the National 10 State Lottery Association to get to the point where 11 those game changes took effect last October. And what 12 we did with those changes was: A, we changed the matrix 13 which required players to choose five numbers from 69 in 14 the first field and one number of 26 in the second. 15 What that did was two things: It 16 increased the odds of winning the jackpot prize up to 1 17 in 292 million, and it decreased the odds -- it made it 18 easier for players -- to win any prize in the game. It 19 decreased those odds from 1 in 32 to 1 in 25. 20 We also increased the third prize in the 21 game from $10,000 to $50,000; and we also included the 22 chance for players to multiply their non-jackpot prizes 23 by up to ten times whenever the Jackpot's worth was at 24 $150 million or less. 25 So those changes to the game meant that 17 1 the odds were now with us that the jackpots would roll 2 more frequently and would hopefully reach new record 3 jackpot heights and we could bring back some of the 4 excitement of Powerball mania to that game. 5 And, Commissioners, that game change has 6 certainly accomplished all that we ever envisioned that 7 it would; and you're going to hear more details from the 8 staff about that in just a moment. They're going to 9 share with you some sales and revenue statistics for 10 both state and national that are nothing short of 11 astounding. And you're going to see and hear the impact 12 that the record jackpot has on the consciousness of the 13 national media. 14 As the National Chair of the Powerball 15 Committee, Kelly Cripe, who is our Media Relations 16 Director, her team and I, we were literally in the eye 17 of the media hurricane for the last two days that this 18 jackpot was rolling. And we're going to attempt to give 19 you a feel for that through some of the things that 20 Kelly's going to share with you. 21 So all those wonderful accomplishments 22 aside, there were some other things that occurred at 23 your Commission that we all are very proud of that 24 aren't so readily apparent when you see the statistics 25 and see the videos. First, it's very important to note 18 1 that we made a critical gain with the younger 2 demographic by virtue of this world-record jackpot that 3 captured the imagination of the entire world. Twenty- 4 and thirty-somethings were discovering the Powerball 5 brand; and their purchases really helped us push sales 6 to records we'd never seen before. 7 Young people in their twenties and their 8 thirties, they were Snapchatting their Powerball 9 purchases to all their friends and family. That younger 10 demographic, the millennials, as we refer to them, that 11 demographic that we, the lottery industry -- 12 Commissioner Rivera and I talked about this -- we have 13 had trouble reaching in the past. This made great 14 inroads to that demographic. That 1.5-billion-dollar 15 jackpot, it taught the millennials how to play 16 Powerball, where to play Powerball, when they could play 17 it; and it really reinforced for them the power of that 18 Powerball brand, which is what we've been wanting to do 19 as an industry for years. 20 We also made incredible inroads into the 21 social media space. The number of "likes" and the 22 followers and friends on all of the Lottery's social 23 media sites increased exponentially. And that didn't 24 occur just in Texas, but that occurred around the world. 25 Commissioners, we held our monthly all- 19 1 staff meeting a couple of weeks ago in this very room; 2 and I was able to share with staff the amazing results 3 of all their hard work that occurred during that 4 jackpot. I reminded them of the importance of teamwork, 5 something I've said numerous times in staff meetings and 6 in newsletters. I reminded them that every task that we 7 do here at the Lottery Commission is important to 8 driving our mission of generating revenue for the State 9 of Texas, and that we could not and we would not have 10 reached the level of revenue generated that you're going 11 to hear about without every one of those staff members 12 doing their job and filling their role to make sure we 13 were a success. 14 I wanted to highlight some of those tasks 15 for you so you know what's happening behind the scenes: 16 First, we answered an incredible amount 17 of phone calls and e-mails from players that were coming 18 in through every page, coming in through our hotlines. 19 We worked closely with our lottery 20 operators. And I'll tell you, Joe Lapinski and his team 21 at IGT, they did a fabulous job of making sure that our 22 retailers were up and running and selling tickets 23 throughout that period of time. 24 We paid out prizes at our claim centers 25 around the state. 20 1 We conducted our own in-state drawings 2 four times a year. 3 And we managed our draw studio, right 4 across the walkway here. 5 During this time Kelly and her media team 6 arranged for numerous interviews for me via satellite in 7 that draw team room. And our draw team had to literally 8 work around us to conduct their drawings so we could get 9 the important marketing message out about the jackpot 10 that was growing. 11 Our IT Department, they did an incredible 12 job. They managed our IT networks to sustain levels of 13 website traffic and wager transactions that were 14 exponentially larger than we had ever seen before, to 15 the tune of somewhere 30 times greater than we've seen 16 in the past. 17 We've also managed our agency budgets and 18 were very careful stewards of the State's money during 19 this time, and I want to elaborate on that point. 20 Whenever you heard news about the Powerball jackpot 21 being estimated or you heard in the middle of a roll 22 they were being bumped to a higher number, I'm not sure 23 what the public's vision of how all that occurs is out 24 there. But I will tell you what that involves, and that 25 is a daily conference call that occurs between Bret 21 1 Toyne, our Chief Financial Officer at the Multi-State 2 Lottery Association; Kathy Pyka, our own Controller; and 3 me. And my role is very simple. I'm just the final 4 approver of a number that's going to be released to the 5 public. 6 And up to a point in that jackpot roll, 7 we've had historical data to go on that's made it 8 relatively easy for us to estimate what sales would be 9 over the next three or four days, depending on whether 10 it was a Wednesday or a Saturday drawing; but once we 11 got past the 700-million-dollar jackpot mark, all bets 12 were off. We were in uncharted territory, and we had 13 never been to a level where we were having to estimate 14 sales going forward. 15 When you're putting 47 different lottery 16 jurisdictions on the hook for hundreds of millions of 17 dollars in an advertised jackpot, it is very serious 18 business. And, again, observing Bret and Kathy work 19 through those numbers, it was remarkable. It was very 20 gratifying to me and I appreciate and I hope everyone 21 appreciates the precision of those jackpot estimates, in 22 particular how we were able to build -- over that last 23 roll, we were able to increase that jackpot in 24 100-million-dollar increments each day until the final 25 day, that final Wednesday, when the jackpot was 22 1 eventually won. 2 And then to have the final actual jackpot 3 number come in at slightly less than $1.6 billion when 4 we were estimating 1.5 billion, I can tell you that was 5 quality work done by two consummate professionals in 6 Kathy and Bret. 7 And last, but certainly not least, I want 8 to make some comments about Kelly Cripe and her media 9 relations team; and they're all sitting over there on 10 the front row to your right. And I want to talk about 11 the manner in which the media requests were handled by 12 them. Media requests were pouring in over the last ten 13 days of that jackpot roll. And due to my position as 14 the National Chair for the Powerball game, Texas was 15 responsible for responding to all national media 16 requests; and over the last few days, that worked into 17 international media requests as well. 18 And I could only see the tip of the 19 iceberg. My vision was pretty limited to trying to work 20 in the large number of interview requests that were 21 coming in from radio and TV stations, and Kelly and 22 staff did an incredible job of setting all those up and 23 prepping me for those. 24 But what I couldn't see from where I was 25 sitting and what was happening below the surface were 23 1 the countless e-mails and phone calls that were coming 2 in from media outlets all around the world, 24 hours a 3 day, in that last crazy week, all of which were being 4 handled, managed, and responded to by our media 5 relations team. They were outstanding in every way. 6 When I would do radio and TV interviews, 7 I would always receive compliments from the producers 8 that I was working with, everything from small radio 9 stations to Good Morning America and The Today Show. 10 They would thank us for the easy access that they had to 11 us, and they would thank us for our ability to respond 12 to their countless and also very repetitive questions 13 that they had. 14 So I want to share the highlight of that 15 entire process, and this happened during the interview I 16 was giving to CNN on the day after the jackpot was won. 17 And after I concluded the interview and we disconnected 18 with the anchor person, the producer came on the line 19 with me. And he said something to me and I immediately 20 took the time to write it down because I wanted to share 21 it with you all and I wanted to share in a public 22 meeting. What he said was, "I've worked with countless 23 media groups on any number of exciting newsworthy events 24 over the years; and your staff, Kelly and her team, have 25 been the absolute best I have ever worked with. And all 24 1 of us at CNN want to thank you for that." 2 So, Commissioners, that's what I mean 3 when I talk about teamwork here at the Lottery 4 Commission; and that kind of performance is indicative 5 of what makes every one of us so proud to work here and 6 proud to be a part of our mission to generate revenue 7 for public education. 8 So with that as an introduction, I will 9 turn it over to Robert and Kelly and Kathy. 10 MS. PYKA: Good morning, Commissioners. 11 I am Kathy Pyka. I'm the Controller for the Commission; 12 and with me, to my right, we have Kelly Cripe, our Media 13 Director. And we also have Robert Tirloni, who is our 14 Products and Drawings Manager. 15 We'll start the presentation off with 16 Robert, and we'll kind of shift as we go through 17 different slides. 18 MR. TIRLONI: Thanks, Kathy. 19 Well, Commissioners, a picture says a 20 thousand words. The 1.5-billion-dollar jackpot actually 21 posed a bit of an issue for us with our outdoor boards. 22 The largest number we could post was $999 million. Out 23 of the 47 jurisdictions that offer Powerball, only seven 24 have the ability to switch between millions and 25 billions. So we are currently looking into options for 25 1 the future, as we hope to have more billion-dollar 2 jackpots. 3 But that being said, the 999-million- 4 dollar number that was posted actually did generate 5 quite a bit of media buzz not only here in Texas but 6 around the country; and it got a lot of good play with 7 media. So it all worked out in the end; and we'll keep 8 you updated on what ends up happening with those outdoor 9 boards. 10 So the record jackpot of 1.5 billion, the 11 drawing for that jackpot was on Wednesday, January 13th. 12 It was a world record, the highest jackpot ever offered. 13 After all the sales were totalled for that Wednesday 14 night drawing, the jackpot was actually an annuitized 15 $1.586 billion; and the cash value for that advertised 16 jackpot amount was 983.5 million. 17 There were three tickets sold for that 18 drawing: One in California, one in Florida, one in 19 Tennessee. The Tennessee winner has come forward. I 20 don't believe there's been any winners in California or 21 Florida that have come forward at that time. Each 22 ticket is worth 528.8 million if you choose the 23 annuity -- or if you chose the annuity; 327.8 million, 24 if you take the cash value. 25 So this jackpot run that ended on the 26 1 13th with the 1.5-billion-dollar jackpot started 2 actually on November 7th. That was a Saturday drawing. 3 The drawing right before that, on Wednesday, the 4th was 4 for an annuitized 142 million; and it was actually won 5 in Tennessee. So I think that shows that the game 6 definitely is a winnable game. 7 MS. PYKA: Commissioners, this chart 8 provides the sales from the November 7th drawing through 9 the drawing held on January the 13th. And looking at 10 the chart on the left, you can see that Texas had sales 11 in the million-dollar range, beginning with the jackpot 12 that was advertised for $40 million and all the way up 13 to the point that the jackpot was 145 million. 14 We saw our first really large sales 15 increase with the 500-million-dollar jackpot when we 16 reached the sales value of $27 million for Texas sales. 17 That was then followed by 70 million in 18 total sales for the jackpot drawing that was held on 19 January the 9th. 20 And then we had $109 million in total 21 sales for the drawing on January the 13th, which was our 22 advertised jackpot of a billion five. 23 So, Commissioners, to kind of put that 24 all into perspective, that sales value of 109 million 25 was 85 times the factor of the original jackpot; and to 27 1 give you the comparative data, in Texas, we normally 2 have draw sales for all of our games of about 3 $20 million per week. So, here, with this one drawing, 4 which was just sales from Sunday to Wednesday, we had 5 sales of 109 million for Powerball. So in total, you 6 can see Texas sales totalled up at $244 million for the 7 entire jackpot roll. 8 We've included the national sales data 9 for you on the right side of the chart; and as you can 10 see, they had a very similar trendline as Texas did. 11 And the fact that we got to the half-billion-dollar-mark 12 sales increase of 352 million followed by national sales 13 of $880 million for the January 9th jackpot. 14 And then on January the 13th, sales 15 racked up to $1,270,000,000; and total national sales 16 for the entire country were $3,183,000,000 for the 17 entire jackpot roll. 18 So, Commissioners, as we look at this 19 next slide, it's a sample communication of the e-mails 20 that were being routed to Gary and our media team on an 21 hourly basis, beginning with the January 6th draw. 22 We've included here cumulative sales data; but we also 23 provided the team an hourly update of actual sales 24 tickets for Texas, which our media team then used for 25 responding to both media inquiries and providing social 28 1 media updates. 2 So included on the right side of our 3 slide is one of the Twitter posts by our media team. 4 And you can see it notes that Texas had just over 5 $6 million in sales for the 4:00-to-5:00-o'clock hour, 6 with a sales rate of a hundred thousand dollars per 7 minute, $1,682 per second; and that was a new record for 8 Texas at that point. And that was the day of January 9 13th reaching that record. As you might imagine, then 10 the 5:00-to-6:00 hour was another record; the 7:00 hour, 11 another record. Things just continued to progress on 12 those sales values. 13 So one thing that Gary had talked about 14 on the media requests, while we were doing this for 15 Texas, they were getting a lot of questions about 16 national sales; and so what we did beginning, then, with 17 the January 9th time period is we began including 18 estimated national sales so they could also be 19 responsive to media queries on where we were across the 20 country on hourly sales and cumulative sales for the 21 draw. 22 So Gary mentioned to you that while the 23 MUSL organization is responsible for developing the 24 grand prize estimate for the Powerball draw, as we moved 25 into larger jackpot amounts, their CFO consulted with 29 1 Gary on a daily basis to approve the jackpot amounts. 2 So to give you the perspective of exactly what we were 3 looking at, so on the draw of January 6th, we began with 4 a jackpot that was advertised at $400 million. As we 5 monitored sales, we bumped that jackpot up to 6 $450 million on January the 5th; and then the morning of 7 January the 6th, it got increased to a half billion 8 dollars. 9 The January 9th jackpot started at 10 $675 million; and, of course, it also had daily 11 increases and ultimately was increased to $900 million 12 on January the 9th. 13 We started the January 13th jackpot at a 14 billion three. It was increased to 1.4 billion on 15 January the 11th. Then we increased it to a billion 16 five on January the 12th. 17 And to give you a little bit more insight 18 into the magnitude of the discussions, just in looking 19 at the jackpot sales on January 11th/12th, our forecast 20 for January 13th, just the one day, we had forecasted 21 $600 million in actual sales and really didn't have a 22 lot of history to go on. So we were looking at previous 23 jackpots. We were looking at hourly trends. We were 24 looking at a lot of different models, pulling all that 25 together. As Gary noted, the accuracy of the actual 30 1 sales for that day were $660 million. 2 And to try to put that in greater 3 perspective, a normal jackpot for Powerball generally 4 generates about 20- to $40 million each draw on a 5 regular jackpot level. So we were looking at 6 600 million just for that one day of January the 13th. 7 So that is just a quick overview of 8 jackpot progression that we looked at. 9 Now, Robert will provide an overview of 10 where the money actually goes. 11 MR. TIRLONI: So, Commissioners, 12 Powerball is a two-dollar wager for the base game. 50 13 percent of that is allocated to all of the prizes in the 14 game. Five percent of every sale goes to retailer 15 commission. We utilize approximately 5 percent for 16 agency's administration. And then the remainder is 17 revenue to the Foundation School Fund of 40 percent. 18 Now, I want to point out that this pie 19 chart just for Powerball. So we have a pie chart on our 20 website and we have brochures at retail that show where 21 the money goes. That information encompasses all of our 22 games, including our scratch ticket games, which have a 23 much higher prize payout and, therefore, return less 24 revenue to the state. So this is just exclusively 25 focusing on the Powerball game. 31 1 So the impact of the Powerball run-up in 2 Texas alone -- and, again, to kind of put in this 3 perspective, in Texas for a typical week, so that would 4 be a Wednesday draw and a Saturday draw, a typical week 5 of Powerball sales are approximately three to three and 6 a half million dollars of the starting jackpot levels. 7 So with that being said, the Powerball 8 sales from November 7th through January 13th -- so 9 that's the entire run from when he started at 40 and 10 ended at 1.5 billion -- the sales for that run in Texas 11 alone were 244 million. That bumps up to 266 million if 12 you include sales for the Power Play. That's the add-on 13 feature or the multiplier. 14 The sales for the last draw were 15 109 million. So, again, that was from Sunday through 16 Wednesday, the 13th. 17 Again, 65 million on the draw day alone, 18 Wednesday, the 13th. And the 6:00-to-almost- 19 7:00-o'clock hour on that day -- of course, that's 20 commuting time, rush hour; we typically see our highest 21 sales during rush hour -- sales reached $8.6 million 22 dollars. 23 So what did that do for the Foundation 24 School Fund? Well, $106 million was generated from 25 November 7th through January 13. 47 million was 32 1 generated for the time period from Sunday through 2 Wednesday alone, which would be the 10th through the 3 13th. And then $28 million was generated for the 4 Foundation School Fund on Wednesday, January 13th alone. 5 Prizes for Texas players, 5 million 6 prizes that amounted to just over $52 million were 7 awarded to players from the November 7th drawing, 8 through the January 13th drawing. 9 We had ten new millionaires in Texas 10 during that time period. Those would be the second-tier 11 prizes in the game. And there were four new 12 millionaires created just on the very last draw of that 13 whole cycle, just on Wednesday the 13th. And this also 14 translates to just over $13 million in retailer 15 commissions that were earned. Now, that does includes 16 Powerball and Power Play sales. 17 On a national level, again, to put this 18 in perspective, sales on a national level for Powerball 19 in a week are about $43 million. Again, that's at base 20 level. 21 So the run from November 7th through 22 January 13th on a national level generated over 23 $3 billion in sales, about 3.3 billion when you factor 24 in Power Play. 1.27 billion was sold, again, during 25 that last draw period from Sunday, the 10th, through 33 1 Wednesday the 13th, with $661 million being sold on 2 January 13th alone. 3 Who benefitted from that on a national 4 basis? Different lotteries have different 5 beneficiaries. The environment, senior citizen 6 programs, education, scholarships. 1.35 billion was 7 dedicated for those beneficiaries during the entire 8 jackpot run, from November through January. 537 million 9 was generated during that last draw period, and 280 10 million was generated on the 1.5-billion-dollar draw day 11 itself. 12 Players received over $1.6 billion in 13 prizes. That's over 65 million prizes during that time 14 period. In addition to the three jackpot prize winners, 15 there were 148 new millionaires created; and there were 16 81 new millionaires created alone on the last drawing, 17 the 1.5-billion-dollar drawing. 18 And retailers across the country -- you 19 know, we always struggle with keeping our retailers 20 engaged with all the different games that we sell and 21 that lotteries all around the country sell. Retailers 22 earned $186 million in retail commissions during this 23 time period. 24 MS. PYKA: So we'll move on to some fun 25 facts. So, as we mentioned before, our draw sales for 34 1 the January 13th drawing were $109.1 million. Our draw 2 sales were the second highest draw sales in the country. 3 We were just behind California and just ahead of 4 Florida. Our total sales for Texas represented 8.6 5 percent of national sales; and as we look at our draw 6 sales for Wednesday alone, which was the 55.2 million, 7 again, we were the second highest in country behind, 8 breaking behind California and just ahead of New York on 9 Wednesday. And our sales were 9.9 percent of total 10 national sales for that Wednesday. 11 As we look at the Texas Power Play draw 12 sales for the 13th, we had 10.6 million in draw sales. 13 We ranked Number 1 in the country. Just as a reminder 14 that Power Play feature allows players to wager an extra 15 dollar to increase their non-grand-prize winnings by a 16 multiplied factor. And as we look at Texas sales there, 17 we racked up at 14.6 percent total national sales. 18 So now, we'd like to move on to the next 19 slide. We want to share with you some information on 20 just what is the residual positive impact as a result of 21 a large jackpot like we just experienced. And so this 22 slide includes a comparison of sales and jackpot levels 23 for the roll cycle that began in November, the last one 24 that we were in; and we're back on the blue line at the 25 bottom of the chart. And what we're doing is we're 35 1 comparing that to the roll cycle that began in January, 2 after the jackpot hit, which is the red bar. 3 So as we look at Texas sales there and we 4 compare the 40-million-dollar jackpot from the most 5 recent jackpot to the current -- or the original jackpot 6 that started in November, we're seeing a growth of sales 7 at -- we currently are at 3.1 million. The last jackpot 8 roll was at 1.3 million. So we've generated more than 9 two times actual sales just from the residual impact of 10 that large jackpot roll on the first draw. 11 As you can see, that sales growth has 12 continued as we move on through the chart to Draw 5. 13 Again, we're seeing Texas sales at 2.3 million in the 14 current roll pattern that we're in; and in the last roll 15 prior to that, Texas sales were at 1.4 million. 16 The other important thing we'd like to 17 note is the jackpot progression because we've seen the 18 increased sales levels in the current roll, we've been 19 able to roll those jackpots to higher amounts. So the 20 current roll pattern that we were under at this time 21 went from 60, to a 15-million-dollar increase, to 22 75 million, followed by an increase to 96 million. 23 Whereas, that original roll cycle that we began with in 24 November, we were still under 10-million-dollar roll 25 increments based on those sales levels. 36 1 So with that, Kelly is now going to 2 provide a media update. 3 MS. KELLY: Good morning, Commissioners. 4 Media interests for the jackpot run began on January 1st 5 with Good Morning America's interview of Gary. As he 6 mentioned, through Gary's role as Chair of the Powerball 7 game, the Texas Lottery received global media coverage; 8 and here's an example of some of those stories. 9 The Media Relations Division put in place 10 traditional and social media tactics that had been 11 successful for us in the past but were executed on a 12 much larger scale for the January 9th and January 13th 13 drawings. Our strategy was to share information as 14 broadly as possible to reach our global audience. 15 We made Gary and our Texas Lottery 16 subject matter experts available to media through 17 conference calls. We also booked blocks of satellite 18 time and worked with our draw team, facility staff, and 19 our broadcast vendors to make Gary available for TV 20 interviews from our draw studio. Gary conducted 21 interviews with television, print, and radio in person, 22 by phone, and via satellite. He was seen on Good 23 Morning America, The Today Show, Fox News, CNN, MSNBC, 24 CNBC, and numerous other media outlets throughout Texas. 25 As part of our strategy to reach a 37 1 worldwide audience, we also pushed reporters to our 2 social media accounts where, as Kathy mentioned, they 3 could receive hourly sales figures which were tweeted up 4 to the draw time and we could communicate other timely 5 information, including jackpot increases. 6 As the day of the final drawing drew 7 near, we saw an unprecedented increase in engagement 8 across our social media accounts. We gained more than 9 64,000 new Facebook friends and jumped from twelfth to 10 the fourth ranked lottery of Facebook. The number of 11 people we could reach skyrocketed, and we were able to 12 reach more than 4 million people with just a single 13 Facebook post. 14 And to include our lottery team in the 15 social media excitement around the jackpot, we shared a 16 video message of good luck to players from our employees 17 on our social media accounts; and this video message 18 included in the media coverage recap video that we have 19 for you today. 20 (Video playing.) 21 MS. PYKA: Commissioners, I'm going to 22 take you back to the sales update now. This is our 23 chart here before you that provides you an update on 24 sales for the week ending Saturday, January 30th. As 25 you can see, our total fiscal year 2016 sales for the 38 1 22-week period are now at $2,155,000,000, which is an 2 increase of $312 million or 16.9 percent compared to the 3 $1,843,000,000 in sales for the same period last fiscal 4 year. 5 As we break that down by product type, 6 our Scratch tickets are noted on the second large chart 7 at $1,482,000,000. That's an 80.1-million-dollar 8 increase over fiscal year 2015. And our Scratch tickets 9 at this point in time are 68.8 percent of our total 10 sales value. 11 And then, moving on to the second blue 12 bar, our draw sales are now at 633.3 million. 13 Commissioners, that's a 232-million-dollar increase or 14 52 percent growth over last fiscal year for this same 15 period. 16 So with that, Robert will now provide an 17 overview of actual sales by product. 18 MR. TIRLONI: So, Commissioners, this is 19 our last slide, just to sum up where we are for the 20 year. This is through January 30th. It incorporates 21 the huge Powerball run that we've been talking about. 22 You see up at the top, Powerball sales are up 23 $218 million, compared to the same time last year. 24 Power Play, the add-on feature, is up 21 million. 25 You'll also notice Lotto Texas that's 39 1 drawn on the exact same days as Powerball, Wednesdays 2 and Saturdays, that is at a healthy surplus for the 3 Lotto Texas game, four and a half million dollar. 4 There's a deficit at Mega Millions. Gary 5 talked about earlier the jackpots drive the sales. Mega 6 Millions has not had the jackpot levels yet this fiscal 7 year, and so we are in a deficit on Mega Millions. 8 Jackpot sales as a whole for that 9 category are up $223 million. Our daily games, in blue 10 in the middle of the slide, are up 8.6 million. Most of 11 that is coming from Texas Triple Chance. That is our 12 new game. Other games are pretty much holding steady. 13 So grand total for the draw games, we're 14 up 232 million. Of course, the bulk of that is thanks 15 to Powerball. 16 And let's not forget Scratch tickets. 17 Even before this Powerball run, our Scratch tickets were 18 doing phenomenally well this fiscal year; and the large 19 crowds of people going into retail just helped our 20 Scratch games sell even better than they were. So we're 21 up over $80 million on Scratch ticket sales through 22 January 30th. 23 All told, we're up $312 million this 24 fiscal year compared to last. 25 And that is the end of the presentation 40 1 for today. We're happy to answer questions if you have 2 any. 3 CHAIRMAN KRAUSE: Lights, please. 4 Our political leaders are really 5 conflicted about the fact that the lottery even exists, 6 but I don't think that anybody can dispute the fact that 7 our staff has executed flawlessly as they sailed boldly 8 into uncharted waters and have done the outstanding job 9 that they did. Without knowing what to expect, without 10 knowing what was going to come at them, they showed how 11 our agency is different from a lot of other state 12 agencies in being entrepreneurial and being responsive. 13 And I want to thank you guys for doing an outstanding 14 job when you had no idea what was going to happen. 15 (Applause.) 16 CHAIRMAN KRAUSE: And I'd like my other 17 Commissioners to ask questions or give comments. 18 Yes. 19 COMMISSIONER ARRIETA-CANDELARIA: So, 20 Kathy, do you think that -- because of the huge spike in 21 the sales, what do you think with regards to overall 22 budget? What are you forecasting through the end of the 23 year? 24 MS. PYKA: Well, what will happen at this 25 point in time is we've got one particular line item that 41 1 has flexibility with it based on sales. 2 COMMISSIONER ARRIETA-CANDELARIA: Okay. 3 MS. PYKA: And that is the compensation 4 to the lottery operator/vendor. And so we will increase 5 the budget to ensure proper compensation for the 6 contract with them; but the remainder of the budget will 7 remain as it is today unless we need to use some of the 8 extra budget authority generated from this potentially 9 for our Scratch ticket contracts, which, as you can see 10 based on the numbers that we had here on the previous 11 presentation, the volume of Scratch tickets being sold 12 was phenomenal. So other than that, those are the only 13 two modifications to the operating budget. 14 What we'll basically see is external 15 monitoring of administrative expenditure as a result of 16 this Powerball jackpot. 17 COMMISSIONER ARRIETA-CANDELARIA: But 18 with respect to advertising, we wouldn't anticipate a 19 higher budget would be needed for that because it seems 20 like we get a lot of free press, right? 21 MS. PYKA: We did. So with regard to 22 advertising, that is a fixed budget for per 23 appropriation. You know, the Legislature decides the 24 value of advertising that we have. So at this point in 25 time it will remain as is today. 42 1 I don't know, Kelly, if you'd like to 2 speak to the free media coverage, the value of that. 3 MS. KELLY: Well, we did, you know, 4 obviously receive a lot of free advertising from the 5 jackpot; but, you know, we still need the advertising 6 side as well. 7 COMMISSIONER ARRIETA-CANDELARIA: Yeah. 8 I think at least for the future, though, if we keep 9 having these kinds of large jackpots, I think that we -- 10 I don't know if we can always rely on free press; but, 11 you know, we might want to look at increasing that 12 budget simply because of the type of games that we've 13 introduced. It does have an impact. 14 I know that some of the staff costs are 15 fixed, if you will, some costs; but we might want to 16 start looking at that for future years to try and 17 increase those budgets that are impacted because of 18 these larger jackpots that we're going to have. 19 Because, I mean, I think when I saw Gary 20 was at 5:13 in the morning in Austin. Some of those 21 that you did really, really early, I don't know how that 22 translates as far as staff compensation, staff working 23 overtime and stuff like that. We really need to think 24 about that because I think this was a game changer, and 25 it does impact our budget. 43 1 Would you not agree, Gary? 2 MR. GRIEF: Wholeheartedly. So many of 3 those things, Commissioner, are driven statutorily by 4 the appropriations process; but we will take your words 5 to heart and see what we can do. We'll put our heads 6 together and think about that. Our legislative 7 appropriations request is coming up in the near future, 8 and we will be considering all those things and start 9 working on that. 10 COMMISSIONER ARRIETA-CANDELARIA: I 11 thought maybe percentage-wise maybe we could request 12 like a certain percentage cap that we have or 13 proportionate to the games that we have that we could 14 allocate it and make a budget transfer as a percentage 15 of the total budget because I really do think that we 16 need to be mindful of these new types of games that we 17 do, and we need to understand what impact it has on our 18 budget and our staff. 19 MR. GRIEF: Sure. 20 COMMISSIONER ARRIETA-CANDELARIA: Thank 21 you so much, and congratulations. 22 COMMISSIONER HEEG: Thank you for your 23 service. 24 MS. PYKA: Thank you, Commissioners. 25 AGENDA ITEM III 44 1 CHAIRMAN KRAUSE: The next agenda item. 2 MS. PYKA: Commissioners, the next agenda 3 item is the revenue update. And so we did wrap up the 4 revenue transfer for January yesterday. So the lottery 5 notebooks include the update through December. 6 I did want to provide an update on the 7 phenomenal transfer from all these Powerball sales. So 8 the transfer that we made yesterday was $176.8 million, 9 and that now gives us total accrued revenue transferred 10 to the State of $548.3 million for the first five months 11 of the fiscal year. 12 Breaking that down, $518.9 million was 13 transferred to the Foundation School Fund; and 14 5.6 million was transferred to the Texas Veterans 15 Commission, with a remaining balance of 23.8 million 16 from unclaimed prizes. So, Commissioners, this 17 represents a 22.6 percent increase or $95.5 million over 18 the amount transferred to the Foundation School Fund 19 through the same period last fiscal year. 20 And I also wanted to share with you we 21 are also looking at a 15 percent increase in transfers 22 to the Texas Veterans Commission through the period 23 ending January 31st. 24 The total transfers now to the Foundation 25 School Fund, the cumulative value is now $18.85 billion 45 1 since the transfers began going to that beneficiary. 2 The final item under this tab is the 3 fiscal year 2016 budget update, which takes us through 4 the period ending November 30th. The Commission's 5 lottery account budget for 2016 is $217.9 million; and 6 of that budget, 73.5 percent is expended and encumbered 7 through the end of the first quarter. 8 Our bingo operations budget is 9 $15.4 million, with 38.2 percent expended and encumbered 10 through the end of the first quarter. 11 With that statement, I'd be happy to 12 answer any questions that you might have. 13 CHAIRMAN KRAUSE: Commissioners? 14 (No response.) 15 CHAIRMAN KRAUSE: Thank you, ma'am. 16 We normally like to take a bathroom break 17 in an hour, but we're going to try to get through the 18 next three items before we do that. 19 So, Mr. Biard. 20 AGENDA ITEM IV 21 MR. BIARD: Thank you, Commissioners. 22 For the record, I'm Bob Biard, General 23 Counsel; and this is Item Number IV, the Re-adoption of 24 the Bingo Rules. For this item we recommend that the 25 Commission conclude the statutory rule review process 46 1 for the Commission's bingo rules by approving an order 2 to re-adopt the existing rules. 3 And I also want to advise you that work 4 on bingo rule revision suggested by commenters are 5 ongoing and will continue through a series of 6 stakeholder meetings. 7 The draft order in your notebooks lists 8 certain rules staff have identified as needing amendment 9 and acknowledge that there were stakeholder meetings 10 initiated, with the commenters, as a result of this 11 review. The order only identifies potential rule 12 changes. It doesn't propose or adopt any changes to the 13 existing rules. It is, in my view, more or less a to-do 14 list for the Commission going forward. 15 The changes that are identified will be 16 brought to the Commission at a future meeting. They 17 will go through the normal rulemaking process of being 18 published in the Texas Register; comments will be 19 solicited; and the proposal will be brought back to 20 Commission for adoption. 21 Staff anticipates that the in-depth 22 stakeholder meetings will result in additional 23 amendments that are not identified in the order. The 24 stakeholder work groups were formed to develop 25 additional rule changes for the Commission as part of 47 1 the process. 2 And to be clear, this order does not 3 restrict the Commission from proposing additional 4 amendments but acknowledges that there, in fact, may be 5 additional amendments. 6 The reasons we are recommending 7 re-adopting the rules now while the stakeholder meetings 8 are continuing is because there is a statutory six-month 9 window in which a rule proceeding must occur under the 10 Administrative Procedure Act. Six months in this case 11 is in the middle of March, before your next Commission 12 meeting. This will rule review was initially published 13 in September, and six months after that would be around 14 the middle of March. 15 If the Commission does not act today, 16 then I believe that the Texas Register will withdraw 17 this matter without the Commission having acted on it; 18 and the statute requires the Commission to take action 19 to complete the rule review. 20 But as I said, this order only identifies 21 potential rule changes in the future to be brought back 22 to you; and it doesn't preclude the ongoing stakeholder 23 meetings. Rule review is really a process that the 24 agency goes through all the time, and what we're doing 25 here is concluding the formal statutorily required 48 1 every-four-year rulemaking process. 2 So our recommendation is to conclude the 3 rule review process for bingo with this order, 4 acknowledging that the stakeholder meetings will 5 continue; and additional proposed rule changes will be 6 brought back to you at a later date. 7 CHAIRMAN KRAUSE: Commissioners, 8 questions? 9 (No response.) 10 CHAIRMAN KRAUSE: All right. Is there a 11 motion to approve the recommendation to re-adopt the 12 rule review? 13 COMMISSIONER RIVERA: Move for approval. 14 COMMISSIONER ARRIETA-CANDELARIA: Second. 15 CHAIRMAN KRAUSE: All in favor, say 16 "Aye." 17 (Chorus of "Ayes.") 18 CHAIRMAN KRAUSE: Done. 19 AGENDA ITEM V 20 MR. BIARD: Thank you, Commissioners. 21 The next item is also mine, for re-adoption of the 22 lottery rules. In this item we're also recommending 23 that the Commission conclude the rule review process for 24 the Commission lottery rules by approving an order 25 re-adopting the rules. 49 1 As with the bingo review, the Commission 2 initiated the lottery rule review at the same time; and 3 notice of intent to review was published in the 4 September 11th issue of the Texas Register. In this 5 case, there were no comments, unlike the bingo rules. 6 The draft order for the lottery lists 7 those rules that the Commission staff has identified as 8 needing amendments, and one rule the staff lists needs 9 to be repealed because it is a rule for a draw game that 10 is no longer offered. 11 As with the bingo rule review, this order 12 only identifies potential rule changes. It does not 13 itself propose or adopt any changes to the existing 14 rules. The proposals for rule changes will be presented 15 to the Commission at a future Commission meeting, and we 16 recommend approval. 17 CHAIRMAN KRAUSE: Commissioners, comments 18 or questions? 19 (No response.) 20 CHAIRMAN KRAUSE: Is there a motion to 21 approve the recommendation to re-adopt Chapter 401? 22 COMMISSIONER RIVERA: Move for approval. 23 COMMISSIONER ARRIETA-CANDELARIA: Second. 24 CHAIRMAN KRAUSE: All in favor say, 25 "Aye." 50 1 (Chorus of "Ayes.") 2 CHAIRMAN KRAUSE: Adopted. 3 Item Number VI. Commissioner Lowe had 4 requested that the next item be put on the agenda. 5 It's all yours. 6 AGENDA ITEM VI 7 COMMISSIONER LOWE: Put me right before 8 the bathroom break. 9 (Laughter.) 10 COMMISSIONER LOWE: And I hate to follow 11 the uplifting message that we've had thus far. And I 12 congratulate everybody with our record sales, and I know 13 that in the state of Texas the children and the veterans 14 will appreciate the work that we've done. 15 But I want to speak generally about our 16 biggest competitor, which is illegal gambling that's 17 going on in our state. And specifically, we've talked 18 before about the authority of the Commission to deal 19 with folks that are our lottery retailers that are 20 engaging in illegal gambling activities at their retail 21 locations and, generally, whether it's our authority to 22 deal with their license outside of their conviction for 23 a gambling offense under the Texas Lottery Commission 24 Code Act. 25 So I was driving down here yesterday and 51 1 I was talking to a buddy of mine on the phone, not in 2 Austin but on the way, about his activities. He's a 3 detective, and he deals with illegal gambling. And we 4 were talking about the big jackpot; and he said, "Well, 5 you know, if you didn't have convenience stores having 6 sweepstakes machines, and 8-liners in their stores, 7 you'd sure be selling a lot more lottery tickets." So 8 he's also working with the Texas Alcohol Beverage 9 Commission in their enforcement efforts for illegal 10 gambling. 11 And so I thought, well, what's different 12 between the TABC and our rules? Well, under TABC rules, 13 which is Rule 35.31 of their rules, they have the 14 authority to suspend or revoke the license for gambling. 15 And that's generally based on their enabling legislation 16 which is similar to ours, and it gives a denial-of- 17 license basis for a person who is endangering the 18 health, welfare, et cetera. We have a similar morals- 19 type provision in your enabling legislation. So the 20 TABC adopted their 35.31, which generally allows a 21 suspension of a license after administrative hearing to 22 deny or suspend their license. 23 So if you look at their website, they 24 deal with the issue of poker in licensed premises; and 25 you may not think that's relevant. Well, it is 52 1 relevant, in my opinion, because General Abbott at that 2 time wrote an opinion on the poker games in licensed 3 premises, and specifically with their Rule 35.31, and in 4 that opinion opined that the TABC -- that gambling on 5 licensed premises was a violation of their rules and 6 that they could, in fact, suspend or revoke a license. 7 So with that in mind, I'm once again 8 asking for the Commission to seek an opinion from the 9 Attorney General of Texas on specifically our authority 10 to deal with this situation which I think is a 11 significant issue for us to deal with. 12 And with that in mind, Bob has prepared 13 some bullet points. Our General Counsel has prepared 14 bullet points, specifically questions; and I hope you 15 had a chance to look at those proposed questions he 16 wants to ask the Attorney General for dealing with what 17 our authority is to deal with this problem. 18 So I know everybody's ready for a break, 19 but just let me tell you a quick story. We were up in 20 Dallas after the big draw, my daughters and my wife. 21 And we were on the way home, and there's a pretty long 22 stretch of road. Between Terrell and Canton there's no 23 real good bathroom stops. Well, my daughters are 7 and 24 8; and that doesn't really make a difference. You can't 25 just say, "Wait. We'll get to a place. Wait." It's an 53 1 immediate need. 2 So we pulled to a convenience store, an 3 old-style convenience store. And my wife went in, and I 4 stayed to listen to the football game on the radio. And 5 my wife said, "When are you going to do something about 6 that?" 7 I said, "Well, Diane, I told the girls to 8 go to the bathroom before we left." 9 (Laughter.) 10 COMMISSIONER LOWE: She said, "That's not 11 what I'm talking about. I'm talking about that sign 12 that says 'The Texas Lottery' and I walked in that 13 convenience store and ten gambling devices, 8-liners." 14 She said, "I know what they look like and they were in 15 there gambling and they're selling your lottery tickets. 16 When are you going to do something about that?" 17 So I said, "Well, Diane, I'm just one 18 member of the Commission. I'm new onboard. I don't 19 want to cause a huge amount of waves, but I'll see what 20 I can do." 21 So in response to my wife's request... 22 (Laughter.) 23 COMMISSIONER LOWE: Another bathroom 24 break. 25 But I do ask, if you would, just consider 54 1 asking the Attorney General specifically what our 2 authority is. That's it. 3 CHAIRMAN KRAUSE: All right. Well, 4 asking for such an opinion is within the authority of 5 the Chairman. So this is not an action item, and I have 6 decided to accede to Commissioner Lowe's request. So 7 I'm going to start studying the questions that Mr. Biard 8 has put together and look at those issues, so it will 9 happen. 10 COMMISSIONER LOWE: Thank you. 11 CHAIRMAN KRAUSE: So, anyway, it looks 12 like it's on the clock about 11:12. We're going to take 13 a five-minute bathroom break. I hope everybody's eyes 14 are not watering. Be back in five minutes. Move quick. 15 (Off the record from 11:16 to 11:25 a.m.) 16 CHAIRMAN KRAUSE: The Lottery Commission 17 is reconvened at 11:25. 18 So our next item involves Mr. Michael 19 Fernandez. 20 AGENDA ITEM VII 21 MR. FERNANDEZ: Good morning, 22 Mr. Chairman, Commissioners. 23 For the record, my name is Mike 24 Fernandez. I'm the Administration Division Director. 25 Item VII in your notebook is an action 55 1 item. Staff is seeking Commission approval to extend 2 the Internal Audit Services contract with McConnell & 3 Jones for a one-year period. 4 If you have any questions, I'd be happy 5 to answer them. 6 CHAIRMAN KRAUSE: Commissioners? 7 COMMISSIONER ARRIETA-CANDELARIA: 8 Mr. Chairman, I have a question. 9 CHAIRMAN KRAUSE: Please. 10 COMMISSIONER ARRIETA-CANDELARIA: One of 11 the things that I was noticing about this particular 12 contract is the time period from January through 13 December. And I know that I spoke to Darlene earlier, 14 and what I would like to see is that the contract run 15 concurrently with our fiscal year because when I 16 reviewed the audit reports, they are not -- like, 17 they're just -- they just don't coincide with our fiscal 18 year. And I think that that, from an audit perspective, 19 is how we should be conducting our audit. 20 And so I'd like to see if we could maybe 21 just explore the idea of having a contract from either 22 October 1 through September 30th in order to comply with 23 State Auditor Regulation Rules or from September 1st 24 through August 31st. And I know that there's provisions 25 to terminate within 30 days or whatever on the contract. 56 1 So I'd like to, over the course of the 2 next, maybe, couple of months, just explore that idea, 3 if the Commission would agree, so that we could align 4 the audit plan because if you look at the audit plan 5 through the last report -- and I think Darlene is going 6 to give us another update -- there's a lot of work 7 that's done. And if we were to terminate this contract 8 today, then we'd leave all of that work basically 9 unfinished. And so I'd like to see that we just go to 10 an audit contract that runs concurrently with our fiscal 11 year rather than the January-through-December timeframe. 12 MR. FERNANDEZ: Very good. We will 13 undertake that review and report back. 14 CHAIRMAN KRAUSE: Any other comments? 15 (No response.) 16 CHAIRMAN KRAUSE: Now, since we have a 17 contract, that's something we can bring up with 18 Darlene's firm and maybe change the terms? 19 MR. FERNANDEZ: Absolutely. And the 20 drivers, as we discussed, are really three-fold: We're 21 required by state law to get delegated authority from 22 the State Auditor to contract an auditor, have an 23 outside contractor come in and perform any audit; and 24 that delegated authority is for a twelve-month period. 25 The other two drivers are the reporting requirements, as 57 1 the Commissioner has alluded to; and that is, the plan 2 has to be, I believe, posted. I know Kathy Pyka will 3 correct me if I'm off track here. But that the plan has 4 to be reported to the State Auditor, the audit plan, 5 September 1; and then, the closeout report, I believe, 6 is by November. 7 So we just need to sit down and take a 8 look at those dates in terms of the contract period so 9 that we're all comfortable that we have a contractor on 10 board during those reporting times. 11 But, again, Commissioner, we certainly 12 will take a look at that. And thank you. 13 COMMISSIONER ARRIETA-CANDELARIA: That 14 would be good. 15 I think that if we could just run that 16 contract around those dates, then, we would have an 17 auditor that goes through the risk assessment and 18 develops the audit plan and then takes it and gets it 19 approved and sends it to the State Auditor and then 20 works on that plan throughout the year. 21 I think that that would probably be more 22 useful, in my mind, than the way that we have now, 23 because right now, if we didn't approve the contract, 24 for example, then we've got all this work that is -- 25 some of which is still in the planning stage; and some 58 1 of it's field work, so it's not quite finished. And so 2 we would be forced, basically, to continue with the 3 audit firm simply because we've got all this work. And 4 I really doubt that any audit firm would come in and 5 just pick up that work from the prior. I don't think 6 I've seen that, but they'd have to do some of the work 7 over. So I think that we really should run the contract 8 period along with the State Auditor timelines and our 9 fiscal year. 10 MR. FERNANDEZ: Very good. Thank you. 11 CHAIRMAN KRAUSE: Any other questions or 12 comments? 13 (No response.) 14 CHAIRMAN KRAUSE: Is there a motion to 15 renew the internal auditor contract for another year? 16 COMMISSIONER ARRIETA-CANDELARIA: So 17 moved to approve. 18 COMMISSIONER RIVERA: Second. 19 CHAIRMAN KRAUSE: All in favor say, 20 "Aye." 21 (Chorus of "Ayes.") 22 CHAIRMAN KRAUSE: Done. 23 The next item is just a reporting item. 24 AGENDA ITEM VIII 25 MR. FERNANDEZ: Item VIII is a briefing 59 1 item. This is advising the Commission of staff's intent 2 to extend the current contract for advertising services 3 with LatinWorks Marketing. 4 CHAIRMAN KRAUSE: A fine firm. 5 MR. FERNANDEZ: Thank you very much, 6 Mr. Chairman. 7 CHAIRMAN KRAUSE: May we now hear from 8 Darlene Brown? 9 AGENDA ITEM IX 10 MS. BROWN: Good morning, Commissioners. 11 I'm Darlene Brown, the Internal Auditor. Thank you very 12 much for just approving the contract extension, and we 13 will work with everybody to align the audit plan and 14 activities through the contract period to the best -- 15 what is in the best interest of the Commission. 16 So our status in the 2016 internal audit 17 plan status, we currently have four audits underway; the 18 procure-to-pay cycle, which is all the activities from 19 the purchasing requests through the actual payment of 20 that invoice. We are wrapping up the field work and 21 either will wrap up this phase or will be getting ready 22 to vet some observations with the team and the business 23 process owners. 24 The same thing with the entity-wide 25 performance measures. We have wrapped up that field 60 1 work, and we are currently working with the business 2 process owners to go over the preliminary observations. 3 We started the jackpot estimation audit, 4 and we also started the lottery drawing process audit. 5 Next month we will begin the risk 6 assessment. This will be a very comprehensive risk 7 assessment to draw from an internal audit plan that 8 covers the next three years, and we would like to have 9 the Commissioners' involvement on that. We will be 10 reaching out to each of you individually to get your 11 input on the risk assessment. 12 As far as budget-wise, we are at 13 13 percent of our budget expended for this fiscal year; 14 and that is both in dollars and in hours. So we are 15 aligning up our hours with financial resources. 16 If you have any questions, I'll be happy 17 to answer them. 18 CHAIRMAN KRAUSE: Commissioners, 19 comments, questions? 20 (No response.) 21 CHAIRMAN KRAUSE: Thank you much. 22 MS. BROWN: Thank you. 23 AGENDA ITEM X 24 CHAIRMAN KRAUSE: Alfonso Royal. 25 MR. ROYAL: Good morning, Commissioners. 61 1 I just have two items in addition to the output measures 2 in your briefing books. First of all, in keeping with 3 my goal of improving customer service and building 4 relationships with the bingo community, I had the 5 privilege of addressing a relatively new bingo 6 association a few weeks ago. 7 Conservative Texans for Charitable Bingo 8 was formed last year. They're a non-profit group of 9 Texas charities and supporters who believe in helping 10 fund local charity needs through the game of bingo, as 11 regulated through the State. This league of 12 approximately 60 people will allow for the increased 13 opportunity to strengthen our relationship with those 14 who we audit regularly. These folks are also 15 represented on the Rule Review Work Group. 16 Lastly, I mentioned previously the 17 Division's robust audit and inspection program, which is 18 designed to monitor bingo games for compliance with 19 administrative rules. I want to make you aware of a 20 game inspection that occurred here in the Austin area 21 where my staff identified a game room that was being 22 operated during a bingo occasion. There was a separate 23 entrance to the game room for the general public. 24 However, there was a see-through double-sided door that 25 allowed patrons to move between the bingo hall as well 62 1 as the game room. Staff documented their observation; 2 and once a report was issued consistent with the 3 Division Rules, we notified the agency's Enforcement 4 Division who, in turn, worked with local law enforcement 5 here in the Austin area. 6 APD received this notification via tip, 7 as reported by the news media. They conducted their own 8 investigation; and on January 14th, they made the 9 illegal gambling bust, according to the news media. We 10 will continue to monitor the actions of APD and see if 11 there's any violation of any administrative rules that 12 comes out of any future actions. 13 Commissioners, that's all I have this 14 morning. 15 CHAIRMAN KRAUSE: Thank you, sir. 16 Comments, questions? 17 COMMISSIONER LOWE: Commissioners and 18 Chairman, I just want to once again compliment Alfonso 19 for the fine work that he's doing. I know that we don't 20 generate $1.6 billion, but I think it's important work 21 that you're doing. 22 And, you know, we had also talked earlier 23 in the agenda about the rulemaking; and I think that 24 they've got three -- you've got three stakeholder 25 meetings left to go? 63 1 MR. ROYAL: That is correct. 2 COMMISSIONER LOWE: And I'm going to make 3 a point to attend as many of those as I can, Chairman, 4 so that I can be as versed as possible in our operations 5 and what the needs of our customers are. 6 CHAIRMAN KRAUSE: Very good. 7 I'd just like to point out that 8 Commissioner Lowe is appointed by Governor Abbott not 9 only as a Commissioner on this Commission but is 10 specially designated to be our Bingo Commissioner. So 11 he'll sing his special song then. 12 COMMISSIONER LOWE: B-I-N-G-O. 13 (Laughter.) 14 CHAIRMAN KRAUSE: Yes, sir. 15 Now we move on to enforcement. 16 Mr. Biard. 17 AGENDA ITEM XII 18 MR. BIARD: Yes, Commissioner. 19 This is Item XII in your notebook. It 20 contains eleven lottery -- excuse me -- Tab XII contains 21 eleven lottery and bingo enforcements matters, Tabs A 22 through K. These are cases where the Commission staff 23 found a violation of a statute or rule and usually 24 licensee failed to appear at the hearing or the staff 25 and the licensee reached a settlement. In this instance 64 1 today we do have some litigated cases. I'll briefly 2 describe the cases, and you can take them up in a single 3 vote. 4 I do want to note that we have the last 5 three items, I through K, brought up to you for 6 discussion because they relate to their common -- they 7 have common facts; and one of them is an item that came 8 up at the December hearing where you took action to deny 9 the staff's recommendation. So the cases are related, 10 and I believe that the Counsel for the organizations and 11 the individuals are here today. 12 There are also commenters here for 13 Tabs XII E and XII G, I believe. And the ones I just 14 mentioned are Tabs XII I, J, and K. 15 Tabs A and B are the non-sufficient funds 16 lottery retail license revocations that are handled in a 17 single order. These were cases that were presented at 18 SOAH for revocation of the retailers' license because 19 they failed to have sufficient funds in their bank 20 account to cover the electronic fund transfers to the 21 Lottery Commission's account. In each case the 22 Administrative Law Judge recommended revocation, and 23 staff recommends that you approve the order in each case 24 revoking the license. 25 Tabs C and D are Lottery Agreed Orders. 65 1 Tab C is Star Stop Food Mart #14, involving the sale of 2 a partially scratched ticket. In this case a customer 3 noticed that a Super Weekly Grand ticket she bought in 4 San Angelo was scratched, partially exposing the symbols 5 in the game Quick 100 play area; and it indicated it was 6 a non-winning game. The Commission investigation 7 revealed video from the store showing the clerk who had 8 sold the ticket scratching other tickets while on duty, 9 which was a violation of store policy. The clerk denied 10 selling any scratched tickets to customers. In this 11 case the clerk is no longer employed at the store, and 12 the parties agreed to a 30-day suspension of their 13 lottery license and to prohibit the clerk from further 14 employment. 15 Tab D is Messina's Liquor #3 in Beaumont, 16 involving a retailer who required additional purchases 17 as a condition of claiming a lottery prize. A customer 18 claiming a 250-dollar prize complained that the owner 19 told her she'd have to make an additional purchase of 20 $10 and that payment would be in additional Scratch 21 tickets because he didn't have enough cash on hand. The 22 Commission investigator posed as a customer, claiming 23 $210 in prizes; and the owner told him he would have to 24 purchase a 50-dollar Scratch ticket. But when 25 questioned, the owner admitted he had required customers 66 1 to make additional purchase, which is a violation. The 2 parties agreed to a ten-day suspension of the retailer's 3 lottery license. 4 Tabs E through G are bingo revocation 5 cases. Tab E involves the Bingo Director's denial of a 6 license renewal for Houston Spring Branch Lions Club due 7 to the organization's failure to show positive net 8 proceeds for the four quarters preceding the renewal 9 date. I do understand that a representative of the 10 organization is here. This case was litigated at SOAH, 11 and the Judge's proposal supports the Division 12 Director's decision to deny the license renewal. 13 The organization has requested a waiver 14 of the proceeds requirement and submitted a business 15 plan to support the request. The Bingo Director 16 determined the plan was not a credible plan to generate 17 net proceeds over the next license period. The 18 organization did not file exceptions to the judge's 19 proposal. 20 I'll note that there's an error in the 21 proposed order in your notebook. It says this is a 22 license revocation; but, in fact, it is a denial of a 23 renewal application. And you will have a corrected 24 order if you vote to approve it. 25 Staff recommends approving the Judge's 67 1 proposal to deny the license renewal, and that is what 2 the staff recommends. 3 Tabs F and G are motions for rehearing on 4 two cases that were decided in the December meeting. 5 Both of these were default hearings, so there was no 6 evidence in the record. These two cases were presented 7 in December. In each case the organization failed to 8 submit required information in its quarterly report. 9 The Commission approved the Judge's recommendation to 10 revoke the license of each organization. 11 And there are two representatives from 12 one of these organizations, the VFW in Victoria, 13 Post 4146, from Victoria, who are here today. 14 Last, we have four bingo Agreed Orders, 15 Tabs H through K. Tab H is a settlement with an 16 individual applicant for the bingo worker registry. As 17 a background, an individual must be listed on the bingo 18 worker registry to act as a bingo operator, manager, 19 cashier, usher, caller, chairperson, bookkeeper, or 20 salesperson. The registration's good for three years, 21 and then the worker must re-apply. 22 Tab H concerns a review of the 23 registration of Joshua Aguilar, who pled guilty to 24 assault and bodily injury in June of 2013. He received 25 deferred adjudication. He was placed on community 68 1 supervision for ten months, which he successfully 2 completed in April of 2014. He has no prior criminal 3 history. The parties agreed to a conditional 4 registration for Mr. Aguilar, who has agreed not to act 5 as a bingo chairperson, manager, bookkeeper, or 6 designated agent for any licensed bingo conductor 7 organization, for 18 months. 8 Now we come to Tabs I through K, which 9 are related by common facts; and we're presenting them 10 together, seeking your guidance, not recommending any 11 particular course of action; although, these have been 12 negotiated as Agreed Orders. And Counsel for the 13 licensee, Mr. Fenoglio and Mr. Barnstone, are here 14 today. 15 We presented Tab I, concerning bingo 16 worker Jerry Stobaugh in the December meeting; and you 17 voted "no" on staff's recommendation, which was to allow 18 him to continue working with the restriction he would 19 not serve as a bingo chairperson for any organization 20 for three years. 21 The common facts in Tabs I through K are 22 that all three cases involve East Plano Bingo Hall. 23 Specifically, staff's allegation is, between January 24 2005 and March 2010, up to 130 illegal gambling devices 25 were operated at or near East Plano Bingo Hall that 69 1 awarded bingo products and prizes, in violation of a 2 prohibition on second games of chance on any bingo 3 premises. Each of these respondents -- well, the two 4 workers have completed deferred adjudication for a 5 related offense; but the third entity here is a 6 corporate lessor and the individual who is the officer 7 of that corporation is an individual who also received 8 two deferred adjudications for illegal gambling. 9 With respect to the workers I did want to 10 just raise one additional fact, that both of their 11 current worker registrations expire in March 2016, which 12 is a little over a month from now; and in order to 13 continue as bingo workers, they will have to file an 14 application. 15 So with that, I would note that the 16 representatives of those three organizations -- two 17 individuals and one organization are here today. Staff 18 recommends approval of Tabs A through H, and we seek 19 your guidance on Tabs I through K. 20 COMMISSIONER HEEG: Did you say we have a 21 representative for E? 22 MR. BIARD: Yes, Tab E is the Houston 23 Spring Branch Lions Club. Mr. Landers is here for that. 24 CHAIRMAN KRAUSE: Mr. Biard, what I'm 25 going to do is I'm going to ask for a motion on those 70 1 items where there is no testimony so we can go ahead and 2 deal with those; and so those are all of them except 3 for... 4 MR. BIARD: I, J, and K. 5 CHAIRMAN KRAUSE: Well, we've got 6 testimony for E, testimony for G, H, I, J, and K. So is 7 anybody bold enough to try and make a motion for what I 8 described? 9 COMMISSIONER LOWE: So moved. 10 (Laughter.) 11 COMMISSIONER ARRIETA-CANDELARIA: Second. 12 CHAIRMAN KRAUSE: Okay. So the motion is 13 to accept the staff recommendation or approve the 14 Judge's proposed order, whatever it is. 15 All in favor, say "Aye." 16 (Chorus of "Ayes.") 17 CHAIRMAN KRAUSE: Unanimous. 18 MR. BIARD: Just to be clear, that's 19 Tabs A, B, C, D, K, & H. 20 CHAIRMAN KRAUSE: That's right. So let's 21 first hear from Mr. Ronald Landers. 22 MR. LANDERS: I've decided not to talk. 23 CHAIRMAN KRAUSE: All right. Thank you 24 for coming down. 25 May we hear from Fernando Garcia, Jr. in 71 1 connection with the VFW Post 4146 in Victoria on a 2 Motion for Rehearing. 3 That's G. 4 COMMISSIONER ARRIETA-CANDELARIA: Yeah, 5 G. 6 CHAIRMAN KRAUSE: Also, we have Armando 7 Villarreal. And so we've got you both up here, and 8 y'all just present together. We're really informal 9 here. 10 MR. VILLARREAL: Good morning, sir, 11 Mr. Chairman, and Members of the Commission. Thank you 12 for allowing us this opportunity to come by and hear our 13 appeal. My name is Armando Villarreal, and I'm the 14 Senior Vice Commander of Victoria Post 4146 in Victoria, 15 Texas. And to my left is our Commander, Mr. Fernando 16 Garcia. 17 First of all, I would like to thank you 18 for allowing us the opportunity to appear so that we may 19 try to right a wrong. Okay. In giving you a little bit 20 of history, the Lottery Commission revoked our bingo 21 license; and it is primarily our fault, okay, because 22 mostly are reporting requirements. It has nothing to do 23 with integrity or anything. It was the financial 24 integrity of the Texas Lottery Commission. 25 I know that the Lottery Commission was 72 1 very patient and very gracious in providing us numerous 2 attempts to assist us with our reporting requirements, 3 which was mostly the Texas bingo quarterly report. We 4 are guilty of several wrong entries within the report 5 because of the fact -- and I don't want to make 6 excuses -- but he's a new Commander and I am a Pro Tem 7 Quartermaster right now because that position has 8 vacated due to these quarterly reports. Our 9 quartermaster a/k/a treasurer resigned abruptly, and I 10 am the Pro Tem Quartermaster. 11 And the previous quartermaster passed 12 away all of a sudden, also got sick. And so he was a 13 long-term quartermaster that handled the bingo 14 accounting and the bookkeeping for many years, and the 15 bad thing about the situation is he was the only one 16 that knew the operation. Nobody else knew it. He had 17 it all on a fingerstick and -- on a computer stick, and 18 he did it all himself. 19 So that was a -- our problem was dealing 20 with qualified bingo operators, and that's the reason 21 why that contributed to our demise and cost us our bingo 22 license, the revocation of our bingo license. We've had 23 this license for a long time. 24 Even though our bingo account right now 25 shows a low surplus of slightly over 2000, we have been 73 1 operating in the red for over a year as a VFW post. 2 Why? Well, it's very simple. I mean, when the little 3 packages of bingo games cost $10 and we have to pay out 4 $2500 for every Thursday that we have bingo and we have 5 an average of 200 that will people show up. So doing 6 the math, you know that we don't even have enough money 7 to pay out what we are supposed to pay out, the $2500. 8 We only have $2000. And that's even though we show a 9 surplus, but that's been throughout the years long ago 10 and mere fact that they also sell pull-tabs; and that 11 would help us, you know, get in the black, you know, 12 with our bingo license. 13 We have a new process in line right now 14 that possibly if you're gracious enough to reconsider 15 and provide us our license back, we have a new process 16 now where now there's two bingo chairmen instead of one. 17 I'm the second one now. I took the course; and I'm 18 qualified now to be a bingo chairman, where before there 19 was only one bingo chairman. 20 Now there's two quartermasters or 21 treasurers. There's a quartermaster and an assistant 22 quartermaster to deal with bookkeeping in case anybody 23 would get sick. 24 And so there's these type of processes, 25 plus we're going to get more volunteers to help us with 74 1 the accounting, and we're going to get into a 2 communication phase with Texas -- more with the Texas 3 Lottery Commission more than what we had been doing 4 before. 5 We relied on these two individuals that, 6 back to back, one passed away; and the other one has 7 been on sick leave. Since that all the communications 8 that came down to us were to through certified mail with 9 the name up on top, VFW, and the address on the bottom. 10 Certified mail was pretty much respected in that office 11 that nobody opened it up, only the person up on top; and 12 that person is no longer with us. So, therefore, a lot 13 of this mail that we had from the Lottery Commission 14 advising us of our discrepancies was no longer within 15 our VFW. He moved up the ranks to District Senior Vice 16 Commander, and we haven't seen him since then. And he 17 had been our bingo chairman, also, in the past. 18 But I'm not making excuses as to why we 19 messed up. We messed up. We didn't do the reports on 20 time, and several of us didn't have the accounting 21 skills necessary to do these reports. I've just been on 22 board for two weeks now as Pro Tem Quartermaster and I'm 23 a retired Post Master from a medium-sized office and I 24 do have the accounting skills and I have been helping 25 the Commander. He has been Commander for six months 75 1 only, and we have been working together day and night on 2 all these reports. 3 The last report we sent in was 4 January 20th to the Lottery -- with all the corrections 5 to the Lottery Bingo Commission. We have not heard from 6 them whether we've made a boo-boo or not so we can 7 correct it; but we'll definitely correct it if we have 8 to. 9 I just want to say one thing. We're 10 looking at a loss with our bingo operation, and I'm sure 11 there are thousands of VFW around the country that are 12 working with a loss. We rely on other things other than 13 bingo. Bingo does not sustain us. It doesn't help us. 14 It doesn't give us any money. It doesn't do anything 15 for us. We, in turn, have to buy everything from the 16 Bingo Commission, the cards, the pull-tabs, the 17 licenses, fees here and fees there and everywhere. We 18 operate at a loss with the bingo operation, but we do it 19 because of the community that we believe in and that we 20 feel is just another way of helping because most of our 21 bingo operation is 50-, 60-, and 70-year-olds and that 22 is their form of entertainment and we enjoy seeing their 23 faces every Thursday night and that's the reason why we 24 have bingo. There's twelve of us up there helping, 25 whether it be ushers, the caller, bingo chairman, 76 1 whoever they are. There's normally around twelve of us, 2 and we enjoy helping the community out in that fashion. 3 We don't make a penny out of it. 4 And I can show you a letter here by the 5 Commission that reads verbatim, "Our files reflect that 6 the bingo operation at VFW Post 4146 failed to result in 7 positive net proceeds over the organization's license 8 period as required by the Bingo Enabling Act, 9 Chapter 2001," so forth and so forth, "for a loss of 10 $1,471 was reported on the Texas Bingo Quarterly Report 11 for the fourth quarter of 2014, all the way through the 12 third quarter of 2015." That's almost a whole year 13 we've been operating at a loss. 14 Like I said, we do this for community 15 service, just the way we help the Little Leagues, the 16 Cub Scouts, the Boy Scouts, the Girl Scouts, the Wounded 17 Warriors. All our money, we donate it out because we 18 are a service organization. We're a non-profit 19 organization. We're not out to make money and get rich 20 out of nobody. 21 The only thing, it was embarrassing for 22 us to lose this license because we've had a million 23 phone calls saying, "Why are you guys not having bingo 24 after so many years?" But we still hold our heads up 25 high because we're still veterans of foreign wars and we 77 1 served our country proudly and, that, we can be proud 2 of. And so we respectfully request that you provide 3 favorable consideration in renewing our license so that 4 we may continue to serve the community as we have done, 5 you know, over the years. And if you don't want to or 6 if for some reason we have made so many discrepancies 7 and we need more training, well, then I think that the 8 Commission should have done a little bit more, also, in 9 bringing somebody here locally to Victoria and say, 10 "Here, let me help you," rather than phone calls and, 11 you know, paper trails. 12 This bingo is not easy, this keeping up 13 the records. I've been doing it now, trying to help 14 Fred out here for the last couple of weeks; and, wow. 15 That's all I've got to say, "Wow." It's a lot of laws 16 with the Bingo Enabling Act and lot of procedures and a 17 lot of taxes. Wow, you know. That's all I got to say 18 as far as this is concerned. 19 Hopefully you will have a favorable 20 consideration that we -- before our employees and our 21 volunteers spread out and we no longer have volunteers 22 or they pass away and we no longer have volunteers. 23 Then we can't have no bingo, regardless of whether you 24 give us license or not. 25 Mr. Garcia, do you have anything to say? 78 1 MR. GARCIA: No, you covered it pretty 2 well. 3 I just want to thank the Commission for 4 giving us a chance to present our sad case. 5 MR. VILLARREAL: Do you have any 6 questions that I may entertain? 7 CHAIRMAN KRAUSE: Commissioners? 8 COMMISSIONER LOWE: Thank you for your 9 service to our country and for you work in the VFW. 10 So you're not making any money out of 11 bingo for the post, so this is a service to the folks in 12 Victoria that want to play bingo at the hall. Let me 13 ask you: Do any of the members of the post draw money 14 or make a salary out of the bingo operations? 15 MR. VILLARREAL: At this time, no. It 16 used to be that our bingo chairman was given a small 17 allowance for coming in and doing all the reports, all 18 the ordering; but he's the one that passed away. And 19 now we are in a volunteer status only. We don't have 20 any money to pay anybody. That's the reason we couldn't 21 hire Counsel to even come and represent us here, because 22 we have $800 in general funds. Now, that, as you know, 23 is barely going to cover the first hour of counsel just 24 to help us out. And we don't have the funds. 25 COMMISSIONER LOWE: But you understand 79 1 that there's a reason for the law requiring the charity 2 to make some money, that it's just not good. 3 MR. VILLARREAL: May I ask: What is the 4 reason, sir? 5 COMMISSIONER LOWE: Well, they don't want 6 all the money to be sucked up by the operator and 7 somebody else. They want the money to go to the 8 charity, and you're telling me that there is nobody in 9 the middle that was sucking money out other than -- 10 MR. VILLARREAL: No, sir. 11 COMMISSIONER LOWE: -- this one guy? 12 MR. VILLARREAL: No. The Bingo Enabling 13 Act -- correct me if I'm wrong -- it enables us to take 14 the money, the proceeds from the bingo operation, to pay 15 for anything related with the bingo, right? For 16 example, the utilities, maybe security, or whatever? 17 COMMISSIONER LOWE: I'd have to defer 18 that to Alfonso. 19 MR. ROYAL: That is correct, reasonable 20 and necessary expenditures. 21 MR. VILLARREAL: Yes, sir. And we were 22 paying that out of our general fund because we don't 23 generate money out of the bingo fund. So we took it out 24 of our barbecue fundraisers and anything else that we 25 might have because, as I mentioned before, we weren't 80 1 making such money. Once in a while we made a little 2 money on the pull-tabs, not the bingo, per se, because 3 our highest audience there is about -- the count was 4 about 225, I would say. We need 250 people there every 5 Thursday night just to break even with the 2500-dollar 6 payout that we are mandated to give out, mandated, you 7 know. 8 COMMISSIONER LOWE: Okay. So let me ask 9 you -- and I'm certainly not trying to embarrass you -- 10 but you don't have any eight-liners or sweepstakes 11 machines in the hall, do you? 12 MR. VILLARREAL: Yes -- no, not in the 13 hall. No, they're in a separate facility -- not 14 facility, but in a separate room, away from the bingo; 15 and if you look at their records, we are at a minus with 16 those. We don't make money out of those, either. 17 COMMISSIONER LOWE: That's a little bit 18 of a problem for me. I don't know if you heard that. 19 MR. VILLARREAL: Yeah. Actually, to be 20 honest with you, we're trying to delete them because 21 we're paying electrical bills on those eight-liners; and 22 they don't bring us any money. 23 COMMISSIONER LOWE: And do y'all have 24 alcohol sales during the bingo sessions in another part 25 of the -- I mean, most VFWs have a bar. 81 1 MR. VILLARREAL: We have beer sales, yes, 2 sir. Yes, sir, we do. We have a canteen area, and then 3 we have the hall area. And the hall area is where the 4 bingo is, and the canteen area is where the eight-liners 5 are. 6 COMMISSIONER LOWE: Okay. All right. 7 Alfonso, you know -- 8 CHAIRMAN KRAUSE: I'll follow your lead 9 on this. 10 (Laughter.) 11 COMMISSIONER LOWE: Alfonso, these guys 12 have a compelling story. I thought that the structure 13 of our process, if you picked the right operators, if 14 you made the right decisions, it seems like with 225 15 folks -- that's a good crowd -- why wouldn't they be 16 making money? And I'm just sort of puzzled. What's 17 your opinion on that? 18 MR. ROYAL: I don't know the specifics of 19 it. We'll look at the expenditures. Part of what the 20 problem is is the inability to get good reports from 21 this organization. By their own admission, they've 22 negative net proceeds. That's what we calculated based 23 on the reports. We are still waiting on the amended 24 reports that are due to us for prior periods, so we 25 cannot really decipher what the issues are. 82 1 I would like to clarify: There is no 2 mandate to pay out the maximum $2500 per night. That is 3 not a Commission rule. That is not a requirement. That 4 is up to the organization themselves. And I would be 5 suggesting that you look at your sales as they're coming 6 in and make an announcement if you're not paying the 7 full amount. There is no Commission requirement. 8 Our education team is available to help 9 you, as I think our accounting staff has been working 10 with various individuals over the past month since you 11 made question about the rehearing. 12 As difficult as this may seem, this goes 13 back to there were some operators that, by virtue of 14 their own lack of participation within the organization, 15 they need to take a step back from bingo, get 16 reorganized, get their membership together. They can 17 come back. This is not a lifetime ban from bingo. 18 COMMISSIONER LOWE: And so there's no 19 probation status, is there? It's either you have one or 20 you don't? 21 MR. ROYAL: Correct. 22 COMMISSIONER LOWE: So the only thing 23 they could do to keep this up in air would be to do some 24 other appeal or take to a District Court if they're not 25 happy, and try to re-litigate it or -- 83 1 MR. ROYAL: Bob. 2 MR. BIARD: If you vote to deny 3 rehearing, then, it's administratively final; and then 4 there is an opportunity to appeal in District Court. 5 MR. VILLARREAL: If I may, this is our 6 final appeal here. If we're denied, we don't have the 7 funds to go forward; and we don't have the, what shall I 8 say, the skills or whatever it takes to go forward and 9 represent ourselves. 10 And so, I mean, you just saw on the board 11 there -- on the screen there, you know, millions and 12 billions of dollars going out from the Texas Lottery; 13 and some it is supposed to go to the veterans. I don't 14 know what percentage goes to the veterans, but we 15 haven't seen a penny. I mean, maybe it's up at the 16 national level and doesn't roll down. 17 We've been to state conventions. They 18 never mention anything about the Texas Lotto giving any 19 money to the veterans or how much or what cause. We've 20 been to national conventions, and they don't mention 21 anything. 22 So why are you guys advertising the 23 veterans are receiving something when we don't have no 24 word out of it? We have approximately 250 members in 25 our organization, and they're saying, "How are the 84 1 veterans being helped by the Texas Lotto Commission?" 2 Don't ask me. I haven't seen nothing on it. 3 COMMISSIONER LOWE: We probably need to 4 do a better job of communicating that. 5 MR. VILLARREAL: Well, absolutely. At 6 the state level and the national level they don't know 7 anything. 8 COMMISSIONER LOWE: I'm sensitive to your 9 issue, but there's got to be -- there was a real serious 10 problem at some point in time with this. And, I mean, 11 you kind of walked into the minefield, so to speak. 12 MR. VILLARREAL: Yeah, I did. I'm left 13 holding a smoking gun. 14 COMMISSIONER LOWE: And I would suggest, 15 like Alfonso says, our Director of Bingo, is just take a 16 breather and do something else for a while. 17 I mean, is that what you recommend, 18 Alfonso? 19 MR. VILLARREAL: And, quite frankly, sir, 20 I mean, we have joined together to brainstorm on other 21 ways of making money other than bingo. Bingo is not 22 sustaining us, like I said; and it will not. So we have 23 to regroup and get another strategy going here for more 24 fundraisers, more this and that, because we're going to 25 continue supporting the organizations that we support, 85 1 ain't no doubt about it. 2 COMMISSIONER ARRIETA-CANDELARIA: 3 Commissioner, I have a question. 4 Alfonso, could you meet with these 5 individuals with respect to a pathway to get a new 6 license? Because I understand the issues here and I 7 understand the process, but I want to make sure -- I 8 mean, it seems that you want to keep continuing to 9 operate bingo at your location. 10 And I certainly do understand the social 11 aspects of having that organization. I know in El Paso 12 some of our senior centers love to play Loteria, and 13 it's a huge draw for them to come in. 14 MR. VILLARREAL: Right, right. 15 COMMISSIONER ARRIETA-CANDELARIA: And 16 they don't make any money off of that. 17 But is there a pathway, a future pathway 18 that you see that you might be able to help them get 19 back to that license position through, you know, 20 education, training, maybe even auditing their 21 procedures that they appear to now have in place; and 22 what would be the timeframe for that? 23 MR. ROYAL: Commissioner, that's 24 something we definitely can do. By virtue of them 25 sitting out a year, during the time period when they 86 1 have re-looked at themselves as an organization, gotten 2 their membership in, dedicated individuals to it, when 3 they're ready to make a decision to come back into 4 bingo, we'd be more than happy to help them, walk them 5 through the application process, get them retrained, and 6 new membership there on the bingo chairperson, the rules 7 and responsibilities of bingo because we don't want this 8 to continue to lose money and use their own 9 organization, their other fundraising activities to 10 support bingo. 11 And that's the most critical piece of 12 this, whereby this is a hard decision. There are a 13 number of organizations that fall into this trap, that 14 bingo has become of the aging membership; and it becomes 15 more of a social activity. And at some point it really 16 is good. This is how bingo basically started years ago 17 was the social aspect. I grew up as a kid playing. 18 But this is serious business, and there's 19 a serious amount of money that's generated in losses 20 that could occur; and by virtue of the Legislature set 21 this up, they did not want organizations, charities to 22 be able to go into bingo and then lose their whole 23 non-profit status for the organization because of not 24 being able to play bingo. So we do want to help them 25 when they are ready to come back in, and we offer that 87 1 support through our education to any organization. 2 COMMISSIONER ARRIETA-CANDELARIA: One 3 more question: With regards to the year out, that began 4 on October 13th of '15 when we made the rulemaking, is 5 that when they began the one year sit-out period? When 6 did that timeline begin? 7 MR. BIARD: Is Kristen here? Kristen 8 Guthrie, the attorney representing the Commission. 9 MS. GUTHRIE: The sit-out started 10 December 10th when the Commission approved the PFD in 11 the matter. 12 COMMISSIONER ARRIETA-CANDELARIA: Oh, 13 okay, so not from the prior hearing? 14 MS. GUTHRIE: Right. 15 MR. BIARD: However, I also want to 16 advise you that it is within your discretion to grant a 17 rehearing. I mean, your option is not only to deny a 18 rehearing. But if you grant a rehearing, there would be 19 an expectation that something would be worked out. So 20 that is an option if you find the reason they presented 21 here compelling. 22 CHAIRMAN KRAUSE: Mr. Rivera, did you 23 have a question or a comment? 24 COMMISSIONER HEEG: More of a comment -- 25 or a couple of things: One, you're saying that the 88 1 money with which the Lottery and the Commission supports 2 veterans, that's information that we can and will 3 provide you. So that's probably the easiest thing we'll 4 talk about here today. 5 Regarding your request to come back, you 6 know, I think you have a compelling story simply because 7 of your lack of history with what you're doing. To me, 8 this is more of almost a new request to hold bingo, 9 regardless of what's happened in the past, because of 10 all the folks that simply aren't there anymore. You 11 know, you've gone through the training. You've made a 12 willing effort to show up and do what you need to do. 13 I think there's still some education that 14 you might need to have; but I think it's something that 15 you can learn as you're going, particularly since you do 16 not have a specific dollar amount that you have to give 17 out now every day whenever you play. So, you know, if 18 your payouts are lower, then you should be able, then, 19 at that point to turn a profit and definitely not turn 20 negative. 21 So having said that, I'm comfortable 22 supporting your application today without any probation 23 period just as if it's a brand-new day for you and your 24 organization; and I'm hopeful that you will, as an 25 organization, prepare better and distribute the 89 1 responsibilities of running the bingo. So, you know, 2 I'm one of five; but you have my support for today. 3 MR. VILLARREAL: Believe me, we've 4 learned our lesson. 5 MR. BIARD: So you would grant a 6 rehearing, with an instruction for Alfonso to work 7 with -- 8 COMMISSIONER RIVERA: And one more thing: 9 For that support, you're going have to unplug those 10 machines, the eight-liners. 11 COMMISSIONER LOWE: No more. 12 COMMISSIONER RIVERA: Remove the 13 eight-liners. 14 MR. VILLARREAL: We're glad to. That 15 will save us a lot of electricity. We're glad to do 16 that. 17 (Laughter.) 18 COMMISSIONER LOWE: No more eight-liners. 19 No more eight-liners, no sweepstakes, nothing. Okay? 20 Alfonso, are you good with being able to 21 work with them? 22 MR. ROYAL: If that's the will of the 23 Commission, I will definitely follow it. 24 MR. VILLARREAL: The membership had 25 already approved about three months ago to turn them 90 1 off. You know, if somebody hits a thousand dollars on 2 that, I'm going to have to go cut lawns or something, 3 you know, to help pay for some of that. 4 (Laughter.) 5 COMMISSIONER LOWE: With that agreement, 6 I'll make a motion to grant the rehearing. 7 CHAIRMAN KRAUSE: Okay. Before I ask for 8 a second on that, Commissioner Heeg. 9 COMMISSIONER HEEG: Yes. I'm in support 10 of granting a rehearing, but there are reasons these 11 rules are in place. And they are very important. And 12 we have a process. This was assigned to a judge, and 13 nobody showed up. There's a process to be followed. 14 There's rules in place for very important reasons, and 15 we're going to be watching you. You need to do what you 16 need to do under the law. 17 CHAIRMAN KRAUSE: So we have a motion on 18 the table for rehearing. 19 Second? 20 COMMISSIONER RIVERA: Second. 21 CHAIRMAN KRAUSE: All in favor, say 22 "Aye." 23 (Chorus of "Ayes.") 24 CHAIRMAN KRAUSE: Motion for rehearing 25 granted. 91 1 MR. BIARD: Thank you, Commissioners. On 2 Motions for Rehearing, we always prepare alternate 3 orders so we have an order prepared for you. 4 MR. VILLARREAL: Thank you so much, sir. 5 Ma'am. 6 CHAIRMAN KRAUSE: Let's move to Item XII 7 H, and we do have a Witness Affirmation Form. 8 MS. KIPLIN: Commissioners, my name is 9 Kimberly Kiplin. I'm an attorney here in Austin, Texas. 10 I'm representing Joshua Aguilar. I submitted a Witness 11 Affirmation Form just in case you-all had a question 12 regarding this proposed reorder. And I think -- you 13 already voted. 14 MR. BIARD: I believe they already voted. 15 MS. KIPLIN: -- you already voted. And I 16 didn't pop up because I figured, well, you didn't have 17 questions. 18 CHAIRMAN KRAUSE: Well, I just want to 19 point out that Ms. Kiplin is a former General Counsel 20 with the Lottery Commission. She has special 21 credibility with us. 22 MS. KIPLIN: I appreciate that on the 23 record. 24 (Laughter.) 25 CHAIRMAN KRAUSE: Next, XII I. We have a 92 1 Witness Affirmation Form from Antole Barnstone. 2 MR. BARNSTONE: Thank you, Mr. Chairman 3 I'll be brief. 4 I represent Jerry Stobaugh, who is here 5 today. Mr. Stobaugh has been the bingo hall manager and 6 has played bingo for over 20 years. We are seeking to 7 keep him on the registry of approved bingo workers. And 8 I really just want to open up for questions, but I have 9 one letter that I'd like to read from, which this is 10 from Terry Box. He is the elected Sheriff of Collin 11 County. Mr. Box said, "I have known Mr. Stobaugh for a 12 number of years." 13 COMMISSIONER RIVERA: I'm sorry. What is 14 his title? 15 MR. BARNSTONE: Sheriff. 16 COMMISSIONER RIVERA: Sheriff. Okay. 17 Sheriff. 18 MR. BARNSTONE: "He is a family man that 19 is even-tempered, honest, and possesses the highest 20 integrity. He is an honest law-abiding citizen, and in 21 my opinion he has shown he is fit to be approved as a 22 bingo worker." 23 And that's all that I have; but if anyone 24 has any questions, I'm glad to answer. 25 COMMISSIONER RIVERA: Why is he up for 93 1 consideration? Why is it that he needs to be 2 represented by you? 3 MR. BARNSTONE: The Commission brought an 4 enforcement action against Mr. Stobaugh. 5 COMMISSIONER RIVERA: Why? 6 MR. BARNSTONE: Because in 2010 there was 7 a prosecution brought against Mr. Stobaugh and some 8 folks that were running the eight-liner hall that was 9 next door to the bingo facility. And Mr. Stobaugh did 10 not run the eight-liner hall. He doesn't operate 11 eight-liners. He doesn't receive income from 12 eight-liners. 13 But when people came to play the 14 eight-liners, they would come across to the bingo hall; 15 and they would redeem their coupons for bingo cards, 16 whatever. And that was a fairly common practice at the 17 time. 18 Seven months after this case was brought, 19 Attorney General Abbott -- at the time Attorney 20 General -- issued an opinion that said you can't do 21 that; but that was after these events. 22 There have not been eight-liners or 23 sweepstakes or anything operated at this hall since 24 March of 2010. 25 COMMISSIONER LOWE: So why did he plead 94 1 guilty then? 2 MR. BARNSTONE: Well, the main reason was 3 because when the plea was offered to him, the Commission 4 rules were different. The plea was deferred 5 adjudication. At the time, when you pled to deferred 6 adjudication, that did not disqualify you from being on 7 the bingo registry. That rule changed in 2014 based on 8 change of statute in 2013. And so he pled guilty 9 without understanding, and I think reasonably, that was 10 going to be any jeopardy to his ability to remain on the 11 registry. 12 COMMISSIONER LOWE: Did you have any 13 communications with our folks -- or were you the counsel 14 for him at the time of the plea? Were you his lawyer? 15 MR. BARNSTONE: Oh, no, sir, I was not. 16 COMMISSIONER LOWE: If you know, were 17 there any communications between his representative, his 18 attorney, and our Commission about whether or not his 19 license would be in good shape if he pled guilty? 20 MR. BARNSTONE: Yes, sir, there was 21 communication between Mr. Stobaugh's criminal lawyer and 22 the Commission at that time. It would have been either 23 Kim Kiplin or Phil Sanderson at the time who said that 24 was not a disqualifying plea. 25 COMMISSIONER LOWE: Then the law changed 95 1 on you? 2 MR. BARNSTONE: In 2013. 3 COMMISSIONER LOWE: And so you're 4 representing to us that he had no financial interest in 5 these machines, did not receive anything? 6 MR. BARNSTONE: Not at all, not in terms 7 of he didn't work for it. He didn't receive income 8 either for labor or as profits or anything. He was a 9 bingo hall manager and still is. 10 COMMISSIONER LOWE: Well, yeah. The 11 facts seem sort of weak on tying him into conspiracy; 12 but I guess, as far as I'm concerned, I think it's the 13 fact that if he had no financial interest in it, no gain 14 that he received from it, and made a deal on the law at 15 that time, that it was not a disqualification. I guess 16 I'm going to change my opinion as to this gentleman 17 based on those representations. 18 And I think what's before us now is 19 either to accept your recommendation, Bob, or -- 20 MR. BIARD: Yes, it's the same Agreed 21 Order that was presented in December, which was an 22 Agreed Order which would basically allow a conditional 23 worker registration. 24 COMMISSIONER LOWE: This is not an 25 editorial comment on my thoughts about illegal gambling. 96 1 I think I'm clear on that, but he made a deal thinking 2 this was where he would wind up. And that's all I have 3 to say, Chairman. 4 CHAIRMAN KRAUSE: Would you like to make 5 a motion on this particular matter? 6 COMMISSIONER LOWE: Sure. I'll move to 7 accept the recommendation of the General Counsel that 8 was negotiated with our Bingo Division. 9 CHAIRMAN KRAUSE: Okay. I think the 10 consequence of that is that he would be suspended for 11 three years from being able to work in a bingo hall; is 12 that right? 13 MR. BIARD: He would be restricted from 14 serving as a bingo chairperson for any organization for 15 three years. 16 COMMISSIONER LOWE: Okay. 17 CHAIRMAN KRAUSE: Did you want to maybe 18 change your motion? 19 COMMISSIONER LOWE: Well, my motion is to 20 adopt the recommendation of our Counsel that's been 21 already negotiated. 22 CHAIRMAN KRAUSE: All right. Looking for 23 a second. 24 COMMISSIONER HEEG: Second. 25 CHAIRMAN KRAUSE: All in favor, say 97 1 "Aye." 2 (Chorus of "Ayes.") 3 CHAIRMAN KRAUSE: So adopted. 4 MR. BARNSTONE: Thank you, Commissioners. 5 CHAIRMAN KRAUSE: Moving on to XII J -- 6 let's do J & K together -- we have Stephen Fenoglio. 7 MR. FENOGLIO: Commissioners, for the 8 record, my name is Stephen Fenoglio. I'm an attorney in 9 Austin, and I represent both Willie Jenkins and East 10 Plano Bingo. The facts in this case are -- let's take 11 Willie Jenkins first. He is a bingo worker, he was at 12 the time. He was also the game room manager. 13 Mr. Barnstone correctly identified that 14 the eight-liners machines were at a separate address 15 with a common door. They could either walk out to the 16 sidewalk or walk through the game room over to the bingo 17 hall. 18 So Mr. Jenkins was the manager. He was 19 arrested in March of 2010. He entered a plea and 20 received deferred adjudication misdemeanor in May of 21 2011. 22 He did have independent counsel. The 23 counsel at the time called -- this is in the record -- 24 Phil Sanderson, who was then the Director of Bingo, and 25 asked if deferred adjudication would adversely affect 98 1 his ability to be on the worker registry. He was told 2 "no." And those of us who have been practicing in this 3 area for a while know that to be the case, without 4 question. And so based on that advice, Mr. Jenkins 5 agreed to enter a plea, received deferred adjudication 6 and community supervision, and within a year was 7 released from that. 8 The new rule that the Commission adopted 9 on deferred adjudication, the Commission voted 10 December 12 of 2013. Again, Mr. Jenkins' plea was in 11 2011; and for the first time after the statutory change 12 in December of 2013, gave notice to the world that 13 deferred adjudication can be considered a conviction. 14 Before that, it was not. 15 So Mr. Jenkins' settlement agreement is 16 that he would have a similar -- could have a similar 17 relationship to the charities, continue to work. By the 18 way, he only works one session a day. And during that 19 period, he won't be a bingo Chair, manager, operator, 20 bookkeeper, or a designated agent for three years. 21 So that's the first of the two cases I 22 have, and I don't know if you want me to pause there. 23 COMMISSIONER LOWE: Let's do that if you 24 don't mind. 25 MR. FENOGLIO: Sure. 99 1 COMMISSIONER LOWE: So you said he pled 2 to a misdemeanor. He was indicted for a felony. 3 MR. FENOGLIO: That is correct. 4 COMMISSIONER LOWE: So were you his 5 counsel in the case? 6 MR. FENOGLIO: I was not. 7 COMMISSIONER LOWE: So do you know, was 8 it pleaded down to a misdemeanor. 9 MR. FENOGLIO: It was pled down to a 10 misdemeanor, keeping a gambling place. 11 COMMISSIONER LOWE: So then he got early 12 discharge from his deferred? 13 MR. FENOGLIO: Correct. 14 COMMISSIONER LOWE: He got two years; but 15 after a year, he got off? 16 MR. FENOGLIO: That is correct. 17 COMMISSIONER LOWE: So since that time 18 what has he been doing? Has he been continuing to -- 19 for the last five years continuing to work in bingo. 20 MR. FENOGLIO: Work in bingo, yes. And, 21 by the way, the machines, after they were removed, 22 they've not been placed back at that location or any 23 location operated by Mr. Jenkins or East Plano Bingo/Ed 24 Branom. And he also had outside employment working as a 25 Sheetrock installer. So bingo is small employment for 100 1 him. 2 COMMISSIONER LOWE: So why does he want 3 back in at this time? 4 MR. FENOGLIO: Well, he continues to work 5 bingo once a week, and he enjoys doing that. 6 COMMISSIONER LOWE: Well, how much -- 7 while these machines were going, was he receiving 8 financial benefit? 9 MR. FENOGLIO: He was paid $10 an hour as 10 an employee to, quote, "manage the game room." 11 COMMISSIONER LOWE: So He didn't get any 12 of the money from the machines, just 10 bucks an hour? 13 MR. FENOGLIO: $10 an hour. That's it. 14 COMMISSIONER LOWE: So he's not had any 15 business -- you're representing to me that he has not 16 engaged in any sort of illegal gambling since 2010, 17 since the raid was? 18 MR. FENOGLIO: That is correct, your 19 Honor. 20 COMMISSIONER LOWE: Well, I'm not "your 21 Honor." 22 MR. FENOGLIO: Commissioner. 23 (Laughter.) 24 COMMISSIONER LOWE: Okay. Well, I think 25 y'all know my attitude on this. I mean, we've got the 101 1 same issue here as we had the last issue, the deal was 2 negotiated with a different law in force. 3 Right, Bob, same deal? 4 MR. BIARD: Correct. 5 COMMISSIONER LOWE: And then we've waited 6 for five years to deal with this, and I think -- and 7 that's not your fault Alfonso. You haven't been here 8 the whole five years. But I think if we're going to do 9 something, we need to do it immediately. We need to get 10 a conviction because I guess we knew; we just didn't do 11 anything about it. So I guess I'd have the same 12 thoughts on -- it is Mr. Stobaugh? 13 MR. FENOGLIO: Yes, your Honor -- yes, 14 Commissioner. 15 COMMISSIONER LOWE: All right. The same 16 thoughts, Chairman. 17 CHAIRMAN KRAUSE: Well, so questions or 18 comments? Was that a motion? 19 COMMISSIONER LOWE: I can make a motion. 20 I didn't know if y'all had any questions. 21 CHAIRMAN KRAUSE: There are no questions. 22 COMMISSIONER LOWE: I make the motion 23 then to adopt the recommendation of the Agreed Order. 24 Is that right, Bob? 25 MR. BIARD: That's correct. 102 1 COMMISSIONER ARRIETA-CANDELARIA: Second. 2 CHAIRMAN KRAUSE: All in favor, say 3 "Aye." 4 (Chorus of "Ayes.") 5 CHAIRMAN KRAUSE: It's adopted. 6 COMMISSIONER LOWE: So let's talk 7 about... 8 CHAIRMAN KRAUSE: East Plano. 9 COMMISSIONER LOWE: East Plano. It's a 10 corporation, right? 11 MR. FENOGLIO: That is correct. 12 COMMISSIONER LOWE: So how -- they were 13 the ones that owned the machines? 14 MR. FENOGLIO: Well, East Plano did not. 15 It was actually a separate corporation; but Ed Branom, 16 who is the owner of East Plano, also was the owner of 17 the entity that owned and operated the machines. 18 COMMISSIONER LOWE: So was the 19 corporation prosecuted, or was he prosecuted? 20 MR. FENOGLIO: He was prosecuted. 21 Maverick Entertainment, LLC was the name of the entity 22 that owned and operated them; but Ed Branom is the 23 common individual in both companies. 24 COMMISSIONER LOWE: So this applies to 25 the corporation, right? 103 1 MR. FENOGLIO: Yes, correct. 2 COMMISSIONER LOWE: So why didn't he just 3 incorporate another business and just get a new license? 4 MR. FENOGLIO: Well, he could have -- 5 well, strike that. 6 East Plano Bingo holds a grandfathered 7 commercial lessor license. This is a real nuance in the 8 Bingo Enabling Act, and I look forward to having a 9 discussion with you about it. But since 1989 the 10 license that East Plano holds has no longer been issued, 11 and that's why they call them grandfathered commercial 12 lessor licenses. So it's really the license issue 13 that's at issue in this proceeding, not East Plano 14 Bingo, Inc. But East Plano Bingo's sole asset is the 15 grandfathered commercial lessor license. 16 So the allegations in this case are 17 different than the allegations, in part, in the two 18 previous cases. Those were worker registry. This is a 19 commercial lessor license. And what the staff has 20 alleged in this case is that East Plano Bingo, Inc., as 21 the licensee engaged in a prohibited second game of 22 chance. 23 Ed Branom, who was charged individually 24 with a felony, entered deferred adjudication, had 25 outside counsel. I also was his outside counsel. I'm 104 1 not a criminal defense attorney, but I worked with that 2 attorney in Plano, Texas. Both of us independently 3 called Phil Sanderson to confirm that if Ed Branom 4 entered a plea of guilty, it would not impact the 5 grandfathered lessor license held by East Plano Bingo. 6 With me so far? 7 So now that the staff changed their 8 allegation. They can't get to the license of East Plano 9 Bingo like they did with the worker registry because Ed 10 Branom does not have a worker registry license. So what 11 they alleged was that there were prohibited second games 12 of chance being conducted on or about the bingo 13 premises. 14 Under Section 2001.416 of the Occupations 15 Code, the Bingo Enabling Act, it says that charities and 16 lessors cannot have a prohibited second game of chance 17 on the bingo premises, with the exception of bingo, a 18 legal raffle, under the Raffle Enabling Act, 19 Chapter 2002 of the Texas Occupations Code, and legal 20 eight-liners. 2001.416 makes that allowance. So the 21 question was: In 2010 were the eight-liners legal, in 22 which case it's not a prohibited second game of chance; 23 or if they were illegal, then it is a prohibited game of 24 chance. 25 So the Commission -- and, by the way, the 105 1 statute also told the Commission -- Provision D says: 2 This section does not prohibit the (inaudible) of a 3 machine that is not a gambling device, as defined in 4 Section 47.01 of the Penal Code. So that's the 5 exception. 6 It also directed the Commission to adopt 7 rules to implement that section. That provision was 8 passed in 1997. I was a part of drafting some of that 9 as an outside lawyer for bingo interests. 10 The Commission adopted a rule to 11 implement that section and give notice to licensees of 12 what is allowed and prohibited; and that rule was 13 adopted in May of 2014. And for the first time the 14 Commission told the licensing public: If you redeem 15 them for bingo products -- you recall Mr. Barnstone's 16 statements earlier. They were operating these 17 eight-liners. They got script, a ticket. They took it 18 from the game room to the bingo hall, and they exchanged 19 that ticket for a bingo product, card minder, paper, 20 pull-tabs. 21 The Commission in 2014 said, "You can't 22 do that with bingo products," based in part on the AG 23 opinion that then chairman Mary Ann Williamson asked for 24 in 2010, in April of 2010. Again, the raid occurred in 25 March of 2010. Is it allowed to redeem for bingo 106 1 product with an eight-liner? Does that violate our 2 rules and our statutes and the penal code? And the 3 Attorney General Abbott at the time, in October of 2010, 4 and said, "Yes, you can't do that." 5 What does that mean here? In March of 6 2010, arrests made. The Lottery Commission asks, "Can 7 they redeem for bingo products" in April of 2010. 8 Abbott comes back in October 2010 and says, "No, you 9 can't. That would be a prohibited second game of 10 chance." Ed Branom enters a plea, gets confirmation 11 independently that at the time that would not be a 12 violation of law. 13 Fast forward to second game of chance 14 rule is adopted in May of 2014, and in September of 2014 15 the allegations for all three cases start. So that's 16 why we're here today. 17 So the agreement that we worked out is 18 that Ed Branom won't operate any eight-liners, and he 19 hasn't since March of 2010. 20 COMMISSIONER LOWE: Or sweepstakes 21 machines? 22 MR. FENOGLIO: Or sweepstakes machines. 23 He will have three-year enhanced monitoring, where staff 24 can come in unannounced. They can come in unannounced 25 at any time, but Ed Branom or East Plano will pay for it 107 1 at least twice a year for that three-year period. And, 2 by the way, the Commission staff has come in on several 3 occasions in the last six months randomly and confirm 4 that no eight-liner sweepstakes machines -- he may have 5 a candy vending machine; but that's as far as it goes. 6 COMMISSIONER LOWE: And he has no 7 interest in any sweepstakes or eight-liners anywhere? 8 MR. FENOGLIO: No. 9 COMMISSIONER LOWE: Well, as far as what 10 he was doing, illegal or not, the fact pattern says that 11 they were paying merchandise in VISA gift cards, not 12 just player's cards. That is on Mr. Willie Jenkins. 13 That's on page 1 of Willie Jenkins, "These gambling 14 devices, in addition to awarding merchandise, prizes, 15 and VISA gift cards, allowed players to secure points 16 on player's cards." And my opinion is he's had this 17 for a long time that -- and it may be a question about 18 the bingo benefits; but, otherwise, it's illegal 19 gambling to have those eight-liners. That's illegal 20 gambling if you -- 21 MR. FENOGLIO: The record in 2010 was 22 they were only redeeming for bingo product. It says 23 2005 to 2010 there. There was an earlier raid, and 24 those were the VISA gift cards. Mr. Jenkins was not 25 charged with any crime in 2005. 108 1 COMMISSIONER LOWE: Okay. Well, so 2 you're representing to us, then, that the most recent 3 plea was dealt with just awarding bingo products? 4 MR. FENOGLIO: Bingo products. 5 COMMISSIONER LOWE: Was there a 6 forfeiture order? 7 MR. FENOGLIO: Yes. As part of the plea 8 agreement, all the machines were forfeited; and all the 9 proceeds from the machines were forfeited. 10 COMMISSIONER LOWE: How much money are 11 you talking about? 12 MR. FENOGLIO: I would have to look at 13 the record. It was several thousand dollars, but I do 14 not recall. 15 COMMISSIONER LOWE: Was it the Collin 16 County Sheriff's Office? 17 MR. FENOGLIO: Plano Police Department 18 was the one that raided. 19 COMMISSIONER LOWE: Well, in the scheme 20 of criminal conduct, it seems like that -- Mr. Brannon, 21 is it? 22 MR. FENOGLIO: Branom, B-R-A-N-O-M. 23 COMMISSIONER LOWE: That he was the bad 24 guy. I mean, he was the head of the organization. I'm 25 conflicted about this one because he did get a felony; 109 1 and even though it was -- I guess the compelling thing, 2 once again, is it's been five years. I mean, we should 3 do something quicker if we're going to do it. 4 MR. FENOGLIO: And he received the same 5 deferred adjudication and community supervision for four 6 years and was released in a year and a half. 7 COMMISSIONER LOWE: I don't know. What 8 do y'all think? Somebody help me. 9 COMMISSIONER RIVERA: No. 10 COMMISSIONER LOWE: What? No? 11 COMMISSIONER ARRIETA-CANDELARIA: What is 12 the relief that you're asking for today? 13 MR. FENOGLIO: That East Plano Bingo 14 continues its license and that it agrees that it won't 15 operate any of these what's called "the machines" and 16 that it pay for the continuing monitoring for the 17 three-year period. 18 COMMISSIONER ARRIETA-CANDELARIA: Rather 19 than a suspension for three years from today, as 20 recommended by staff? 21 MR. FENOGLIO: No, that's the 22 recommendation of staff. This is a joint settlement 23 agreement. 24 COMMISSIONER ARRIETA-CANDELARIA: I see. 25 I guess I'm unclear. It says that the consent order is 110 1 three years from the date it's passed; but according to 2 the consent order -- do we have a revised consent order? 3 MR. BIARD: Well, this is the first time 4 you've seen this one. The agreement is for enhanced 5 monitoring that would take place over a three-year 6 period with, I believe, a minimum of two inspections per 7 year that East Plano Bingo, Inc. will pay for. These 8 are unannounced inspections, but the staff may have 9 additional inspections as they see fit for a three-year 10 period. 11 COMMISSIONER RIVERA: You know, I would 12 be fine if their doors shut. So that's where I'm at. 13 MR. BIARD: Well, just to be clear, if 14 the Agreed Order isn't approved, it isn't a matter of 15 revoking a license today. It's a matter that would have 16 to be sent to SOAH for administrative hearing. 17 And also, to be clear, because this is a 18 corporate lessor, not an individual who has a commercial 19 lessor license, the issue of Mr. Branom's deferred 20 adjudications won't disqualify the lessor from having a 21 permit. It will be based on the second game of chance 22 issue. 23 COMMISSIONER LOWE: So if we do nothing 24 today, then it goes to SOAH; and they decide, right? 25 That's what happens? 111 1 MR. BIARD: If your direction is not to 2 approve this Agreed Order and you want the case to be 3 litigated, there is a hearing date I believe already. 4 COMMISSIONER LOWE: Then I'd like to get 5 what they think, what their thoughts are. 6 MR. BIARD: There would be a 7 recommendation that would come back for your 8 consideration. 9 COMMISSIONER LOWE: So basically that 10 leaves it up in the air for a year or two, anyway? 11 MR. BIARD: It could, but not 12 necessarily. It depends on how fast they get to hearing 13 and how long the hearing takes. 14 COMMISSIONER HEEG: Could you explain a 15 little more about a corporate entity and not an 16 individual that has the license? What issues would be 17 before the Judge? 18 MR. BIARD: Sure. Under the Bingo 19 Enabling Act, a person who is ineligible to hold a 20 commercial lessor license includes a person convicted of 21 gambling-related offenses. So under the law as it 22 exists today, if the lessor were an individual, those 23 deferred adjudications could be considered to be 24 convictions; but because the licensee, the lessor, is a 25 corporation, the corporation didn't receive deferred 112 1 adjudication. And the only thing you can -- the only -- 2 under the statute, you know, the only offense that an 3 officer commits that can be attributed to the 4 corporation is an actual conviction, not deferred 5 adjudication. 6 So the issue before the judge, since the 7 deferreds won't be relevant to the license issue in this 8 particular instance, the issue that I believe is set for 9 litigation would be whether the lessor allowed or 10 conducted second games of chance. 11 COMMISSIONER HEEG: But the deferred 12 adjudication would be evidence to be considered? 13 MR. BIARD: I believe it could be 14 considered as part of the record and the facts behind 15 the deferred adjudication. 16 CHAIRMAN KRAUSE: Well, after hearing the 17 discussion of the Commission, do I have a motion of some 18 kind? 19 COMMISSIONER RIVERA: I move to deny the 20 request. 21 CHAIRMAN KRAUSE: Is there a second? 22 COMMISSIONER HEEG: Second. 23 CHAIRMAN KRAUSE: All in favor, say 24 "Aye." 25 (Chorus of "Ayes.") 113 1 CHAIRMAN KRAUSE: The "ayes" have it. 2 Done. 3 MR. BIARD: So, to be clear, then, your 4 intent is for the case to go to SOAH? 5 CHAIRMAN KRAUSE: Yes. Let them develop 6 the record. 7 MR. BIARD: Commissioners, I still 8 believe that we have outstanding matter E. I don't 9 recall there being a motion. There was discussion, but 10 you wanted to approve the recommendation on E. 11 CHAIRMAN KRAUSE: Well, E is where we had 12 a Witness Affirmation form; and he decided not to 13 testify. 14 MR. BIARD: That's correct, but I don't 15 think you've taken a vote on that. 16 CHAIRMAN KRAUSE: Okay. 17 MR. BIARD: And then on G, you voted 18 against the recommendation to grant rehearing. 19 So on Tab E, the motion would be to 20 approve the recommendation and on G, it would be a 21 motion to grant rehearing. 22 CHAIRMAN KRAUSE: Do I have a 23 Commissioner that wants to make a motion along the lines 24 described by Mr. Biard? 25 COMMISSIONER RIVERA: Move to approve 114 1 Item E and to grant Item G. 2 CHAIRMAN KRAUSE: Second? 3 COMMISSIONER ARRIETA-CANDELARIA: Second. 4 CHAIRMAN KRAUSE: All in favor, say 5 "Aye." 6 (Chorus of "Ayes.") 7 CHAIRMAN KRAUSE: So approved. 8 AGENDA ITEM XIV 9 CHAIRMAN KRAUSE: All right. It is 10 12:44, and we are going to make a motion to go into 11 Executive Session to deliberate personnel matters, 12 including the appointment, employment, evaluation, 13 reassignment, duties, discipline, or dismissal of the 14 Executive Director and Bingo Director; and the duties of 15 the General Counsel and Human Resources Director, 16 Pursuant to Texas Government Code Section 551.074; and 17 to receive legal advice regarding pending or 18 contemplated litigation or settlement offers and other 19 matters pursuant to Texas Government Code Section 20 551.071, including but not limited to those items posted 21 on the Open Meeting notice. 22 COMMISSIONER ARRIETA-CANDELARIA: So 23 moved. 24 CHAIRMAN KRAUSE: All in favor, say 25 "Aye." 115 1 (Chorus of "Ayes.") 2 CHAIRMAN KRAUSE: We're going into 3 Executive Session right now. 4 (Off the record from 12:45 to 1:20 p.m.) 5 AGENDA ITEM XV 6 CHAIRMAN KRAUSE: The Texas Lottery 7 Commission is out of Executive Session at 1:20. There 8 is no action to be taken as a result of Executive 9 Session. 10 AGENDA ITEM XVI 11 And I make a motion that we adjourn. 12 COMMISSIONER RIVERA: Second. 13 CHAIRMAN KRAUSE: We're adjourned. 14 (Proceedings concluded at 1:21 p.m.) 15 --oo0oo-- 16 17 18 19 20 21 22 23 24 25 116 1 STATE OF TEXAS) 2 3 **************************** 4 REPORTER'S CERTIFICATE 5 **************************** 6 7 8 I, DEBBIE D. CUNNINGHAM, CSR, Certified 9 Shorthand Reporter in and for the State of Texas, do 10 hereby certify that the above and foregoing contains a 11 true and correct transcription of all portions of the 12 above-referenced meeting to be included in the 13 transcript of said meeting, and were reported by me to 14 the best of my ability. 15 16 SUBSCRIBED AND SWORN TO under my hand and 17 seal of office on this the 15th day of February, 2016. 18 19 ______________________________ 20 DEBBIE D. CUNNINGHAM, Texas CSR 2065 Expiration Date: 12/31/2016 21 Kim Tindall & Associates 16414 San Pedro Avenue, Suite #900 22 San Antonio, Texas 78232 (210) 697-3400 23 24 25