0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 COMMISSION MEETING ) 6 FOR THE TEXAS ) LOTTERY COMMISSION ) 7 8 9 10 COMMISSION MEETING 11 APRIL 12, 2018 12 10:00 a.m. 13 AT 14 TEXAS LOTTERY COMMISSION 15 611 East 6th Street Austin, Texas 78701 16 17 18 19 20 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera 5 GENERAL COUNSEL: Robert F. Biard 6 EXECUTIVE DIRECTOR: Gary Grief 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: 8 ACTING LOTTERY OPERATIONS 9 DIRECTOR: Ryan S. Mindell 10 CONTROLLER: Katheryn J. Pyka 11 PRODUCTS MANAGER: Robert Tirloni 12 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS PAGE 2 I The Texas Lottery Commission will call the 3 meeting to order Pledge of Allegiance to the U.S. and Texas 4 flags . . . . . . . . . . . . . . . . . . . 7 5 II Report, possible discussion and/or action on proposals for Advertising Services (RFP No. 6 362-18-0002), including approval to execute contract. . . . . . . . . . . . . . . . . 21 7 III Report, possible discussion and/or action on 8 agency major contracts, including amendment, renewal or extension of the contract for 9 Internal Audit Services and Instant Ticket Manufacturing and Services . . . . . . . 22 10 IV Report, possible discussion and/or action on 11 agency prime contracts, including amendment, renewal or extension of the contracts for 12 Security Officer Services, Website Hosting Services, Houston Claim Center Lease, and the 13 trademark license and promotional agreement with the Houston Texans . . . . . . . . . 24 14 V Report, possible discussion and/or action on 15 HUB and/or minority business participation, including approval of the agency's Fiscal 16 Year 2017 Minority Business Participation Report . . . . . . . . . . . . . . . . . 27 17 VI Consideration of and possible discussion 18 and/or action on implementing the Bingo Advisory Committee . . . . . . . . . . . . 8 19 VII Consideration of and possible discussion 20 and/or action, including proposal, on amendments to 16 TAC §402.102 (Bingo Advisory 21 Committee), 16 TAC §402.300 (Pull-Tab Bingo), and 16 TAC §402.402 (Registry of Bingo 22 Workers) . . . . . . . . . . . . . . . . 15 23 VIII Consideration of and possible discussion and/or action on Request for Opinion 24 RQ-0199-KP to the Office of the Attorney General, regarding transferability of rights 25 a grandfathered bingo commercial lessor holds 0004 1 under a commercial lessor license . . . . XX 2 IX Consideration of and possible discussion and/or action, including proposal, on 3 amendments to 16 TAC §401.308 (“Cash Five” Draw Game Rule) . . . . . . . . . . . . . 31 4 X Consideration of and possible discussion 5 and/or action, including adoption, on new 16 TAC §403.800 (Savings Incentive Program) 41 6 XI Report, possible discussion and/or action on 7 lottery sales and revenue, game performance, new game opportunities, advertising, 8 promotional activities, market research, trends, and game contracts, agreements, and 9 procedures . . . . . . . . . . . . . . . 42 10 XII Report, possible discussion and/or action on transfers to the State . . . . . . . . . 51 11 XIII Report, possible discussion and/or action on 12 external and internal audits and/or reviews relating to the Texas Lottery Commission, 13 and/or on Internal Audit activities . . . 52 14 XIV Report, possible discussion and/or action, including approval, on the Charitable Bingo 15 Operations Division report required by Bingo Enabling Act §2001.060 for calendar years 16 2016-2017 . . . . . . . . . . . . . . . . 18 17 XV Report by the Charitable Bingo Operations Director and possible discussion and/or 18 action on the Charitable Bingo Operations Division’s activities, including licensing, 19 accounting and audit activities, pull-tab review, and special projects . . . . . . XX 20 XVI Report by the Executive Director and possible 21 discussion and/or action on the agency’s operational status, major contracts, agency 22 procedures, awards, and FTE status . . . XX 23 XVII Consideration of the status and possible approval of orders in enforcement cases . 57 24 Lottery NSF License Revocation Cases (Default) A. Docket No. 362-18-1602 – Unique Liquor 25 B. Docket No. 362-18-1921 – Lake City Food 0005 1 Mart C. Docket No. 362-18-1925 – Super Stop 2 D. Docket No. 362-18-1926 – K&K Food Store E. Docket No. 362-18-1927 – F & A Food Mart 3 F. Docket No. 362-18-1928 – Albert’s Beverage and Market L 4 G. Docket No. 362-18-1929 – Postal Annex H. Docket No. 362-18-2181 – Corner C Store 5 Lottery Agreed Orders I. Docket No. 362-18-0885 – Alma One Stop 6 J. Docket No. 362-18-1119 – Grab N Go K. Docket No. 362-18-1223 – Express 146 7 L. Case No. 2017-476 – Payless Super Market M. Case No. 2017-932 – Kwik Pik Food Store 8 Coppell N. Case No. 2017-1242 – Amigo Mart 9 O. Case No. 2017-1523 – Shop N Save Bingo Agreed Orders 10 P. Docket No. 362-17-5424.B – AmVets Post 52, Inc. [Motion for Rehearing and Agreed 11 Order] Bingo License Revocation and/or Denial Cases 12 Q. Docket No. 362-18-0629.B – Catholic War Veterans Post 770, J.L. Garza, Inc. 13 R. Docket No. 362-18-1138.B – Alashandra Gardley (Bingo Worker – Default) 14 S. Docket No. 362-18-1834.B – Harold Adams (Bingo Worker – Default) 15 XVIII Public Comment . . . . . . . . . . . . . 64 16 XIX Commission may meet in Executive Session 20 17 A. To deliberate personnel matters, including the appointment, employment, 18 evaluation, reassignment, duties, discipline, or dismissal of the 19 Executive Director and/or the Charitable Bingo Operations Director pursuant to 20 §551.074 of the Texas Government Code. 21 B. To deliberate the duties of the General Counsel and/or the Human Resources 22 Director pursuant to §551.074 of the Texas Government Code. 23 C. To receive legal advice regarding 24 pending or contemplated litigation or settlement offers, or other legal 25 advice, pursuant to §§551.071(1) and (2) 0006 1 of the Texas Government Code, including but not limited to legal advice 2 regarding the following items: 3 Pending and potential litigation regarding Fun 5’s Scratch Ticket Game #1592, including 4 Travis Co. District Court Cause No. D-1-GN-14-005114, Third District Court of 5 Appeals Cause No. 03-16-00172-CV (Steele, et al. v. GTECH Corp.); and Dallas Co. District 6 Court Cause No. DC-14-14838, Fifth District Court of Appeals Cause No. 05-15-01559-CV 7 (Nettles v. GTECH Corp. and Texas Lottery Commission). 8 Julam Investments, Inc. v. Texas Lottery 9 Commission (Travis Co. District Court Cause No. D-1-GN-16-006124) 10 State of Texas v. Equal Employment 11 Opportunity Commission et al. 12 Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 467, the 13 Bingo Enabling Act, the Open Meetings Act, the Public Information Act, the 14 Administrative Procedure Act, employment and personnel law, procurement and contract law, 15 evidentiary and procedural law, ethics laws, and general government law. 16 Legal advice regarding any item on this open 17 meeting agenda 18 XX Return to open session for further deliberation and possible action on any 19 matter posted for discussion in Executive Session. Any matter posted for Executive 20 Session also may be the subject of discussion and/or action in open session prior to 21 Executive Session . . . . . . . . . . . . 20 22 XXI Adjournment . . . . . . . . . . . . . . . 64 23 Reporter's Certificate . . . . . . . . . . . . . . 66 24 25 0007 1 P R O C E E D I N G S 2 AGENDA ITEM I 3 CHAIRMAN KRAUSE: It's 10:00 and the 4 Lottery Commission is in session. We do have one 5 vacancy, so we have a quorum. We have a special 6 designated pledge Commissioner who's going to lead us 7 in the U.S. pledge and the Texas pledge. Commissioner 8 Candelaria. 9 (Pledges recited) 10 CHAIRMAN KRAUSE: We start off with an 11 announcement today and then I'm going to just give you 12 a little brief rundown how we're going to do this 13 meeting after my announcement. We're going to tell you 14 right now we're going to pass items -- agenda items 15 VIII and XV and we're going to take bingo items first. 16 The first one is one I think that there's been a lot of 17 interest in, and then after we finish the bingo items, 18 we're going to go into Executive Session for a bit, and 19 then we're going to come out and deal with the Lottery 20 issues. 21 So the first announcement today is to 22 announce the resignation of Alfonso Royal as our Bingo 23 Director. And Alfonso is a man that I hired, and I 24 think that he accomplished some great things while he 25 was the Bingo Director. He didn't give any reasons for 0008 1 his resignation, but like virtually everyone that 2 serves in that position, there was some good that was 3 accomplished by the diligent work that Mr. Royal, you 4 know, brought to the Bingo Division. And he lists four 5 things that he's particularly proud of and I am proud 6 of those things with him and for him, as well. 7 Running the Bingo Division is a hard 8 job. It takes probably more talent than a normal 9 person has. And I'm really grateful to Alfonso Royal 10 for taking that on and doing the things that he did do 11 that he's proud of and, you know, at this time in his 12 life he's going to move on, but I want everybody to 13 know how thankful and grateful I am to Alfonso Royal. 14 AGENDA ITEM VI 15 CHAIRMAN KRAUSE: So that said, the 16 first item for discussion is the Bingo Advisory 17 Committee. Mr. Biard. 18 MR. BIARD: Commissioners, for the 19 record I'm Bob Biard, General Counsel. Over the last 20 few months, a group of industry representatives have 21 met with commissioners individually and one of the 22 topics of these meetings was the appointment of a Bingo 23 Advisory Committee as authorized by the Bingo Enabling 24 Act. 25 This item is on the agenda today based 0009 1 on those discussions and the industry's request that 2 the Commission decide on implementing the BAC. If you 3 decide to implement the BAC, it will set in motion 4 other tasks staff needs to accomplish to facilitate the 5 appointment of the BAC members in time for the next 6 fiscal year, which starts September 1st, such as 7 soliciting nominations for appointment and updating the 8 Commission's Bingo Advisory Committee Rule. 9 The only potential action contemplated 10 on this item is your decision whether to implement the 11 BAC and have it in place for fiscal year 2019. 12 If you agree to do so, in the next item 13 we have a rule proposal where we recommend amendments 14 to update the BAC Rule. 15 That concludes my comments. 16 CHAIRMAN KRAUSE: We are bringing back 17 the BAC because it has been requested by industry. I 18 am hoping that the BAC, you know, is as useful as, you 19 know, I want it to be and I think the industry thinks 20 that it will be. The reason that the Bingo Advisory 21 Committee went away for a few years is that the Bingo 22 Advisory Committee back in that day, and that was back 23 in that day it turned out to not be very helpful to the 24 Commission. I had a specific thing that I was very 25 interested in and I asked them to investigate it and I 0010 1 got nothing. And I said to please go and try harder 2 and I still got nothing. And so for me it wasn't 3 helpful. And so in order for the Bingo Advisory 4 Committee to be useful to the Commission then it's 5 going to have to do some hard work and we want this 6 input and we want diverse input. And so, I've got high 7 hopes that the BAC is going to be reorganized and 8 rejuvenated and is going to be making positive input to 9 the Commission. It's the, you know, way for industry 10 to directly talk to us without going through the Bingo 11 Division and we are very willing to, you know, take 12 that input. 13 And that's all I have to say. Now, I 14 did not notice that this is an action item, so how do 15 we -- how do we approve the Bingo Advisory Committee? 16 MR. BIARD: I would suggest that -- 17 CHAIRMAN KRAUSE: Do I put a motion? 18 MR. BIARD: -- a Commissioner make a 19 motion to implement the BAC for fiscal year 2019. 20 CHAIRMAN KRAUSE: All right. I'm 21 looking for motion to do just that. 22 COMMISSIONER RIVERA: Move for approval. 23 COMMISSIONER LOWE: So before I second 24 the motion, Chair, if I could just say a couple of 25 things? 0011 1 CHAIRMAN KRAUSE: Yes. 2 COMMISSIONER LOWE: So I'll echo -- am I 3 hot? 4 COMMISSIONER ARRIETA-CANDELARIA: No, 5 press it. 6 COMMISSIONER LOWE: Okay. Excuse me. 7 So let me second the Chair's comments about Alfonso's 8 work at the Commission. It's a hard job that he had 9 and it's actually a hard job being the Bingo 10 Commissioner. And the Governor's Office told me that 11 when I took this spot, but I'm grateful that I can 12 contribute and do some positive things on behalf of 13 this great industry that benefits charities in the 14 State of Texas. 15 So you know I was -- let's say I was not 16 exactly on board with the Bingo Advisory Commission for 17 a while, but like Paul on the Road to Damascus, my 18 senses have been opened and I'm ready to proceed with 19 this, the Advisory Committee, and know that with the 20 positive attitude on all sides, that we can make things 21 happen for this industry in line with the Governor's 22 wishes, the people's wishes of the state of Texas and 23 so I look forward to that and thank you to all the 24 people that have worked on this presentation to us, and 25 look forward to working with you. 0012 1 So on that, Chair, I will second the 2 motion made by Commissioner Rivera. 3 CHAIRMAN KRAUSE: Alrighty. 4 Commissioners, we're ready to vote. All in favor say 5 aye. 6 (Chorus of "ayes") 7 CHAIRMAN KRAUSE: Any abstentions or 8 nays? Hearing none, passes. We have a Bingo Advisory 9 Committee for one year. 10 (Applause) 11 MR. BIARD: And Commissioners, Chairman, 12 there were a couple of people who signed up to make 13 comments. I'm not sure if they want to speak on that 14 -- this item. I think Mr. Bresnen and Will Martin. 15 CHAIRMAN KRAUSE: Well, let's see. 16 That's right. Bingo Advisory Committee. Let's hear 17 from Will Martin and then after him we will hear from 18 the eloquent Steve Bresnen. The ever eloquent, and 19 concise Steve Bresnen. 20 MR. MARTIN: For the record, I am Will 21 Martin. I'm co-Executive Director of Conservative 22 Texans for Charitable Bingo and today I just want to 23 come before y'all and thank y'all, each and every one 24 of y'all, not just for saying -- you know, giving us a 25 Bingo Advisory Committee, but for the independent 0013 1 meetings we've been able to have with y'all and 2 discuss. We feel like the bingo industry is back on 3 its feet and we're moving on and that y'all will help 4 us in the future. Thank you very much. 5 CHAIRMAN KRAUSE: You bet. One of the 6 things that Mr. Royal did that was a positive thing is 7 he had I think industry input. And so I don't think 8 that the Bingo Advisory Committee is going to supplant 9 that and so more inputs we have, the better. Mr. 10 Bresnen. 11 MR. BRESNEN: Thank you, Mr. Chairman 12 and Commissioners. We very much appreciate the action 13 you're taking. Commissioner Lowe, the work you've put 14 in and you listen to us and very much appreciate your 15 efforts. 16 Mr. Chairman, message received. Y'all, 17 message received. We have -- one of the good things 18 that has come out of our efforts and meeting with the 19 individual Commissioners and with staff is that we have 20 the elements of a work plan that we'll be recommending 21 for your consideration and we will get those on paper 22 in a way that's not the shorthand that we captured 23 those things with so you can understand exactly what 24 we're recommending be part of that work plan. 25 We also -- the -- the four groups that 0014 1 have been meeting together agreed that we would 2 collaborate on a list of people to recommend for your 3 consideration that would have geographic, ethnic, 4 gender diversity, as well as represent the various 5 aspects of the industry and so we'd be forwarding that 6 for your consideration as well. 7 I just want to say one more time, 8 thanks. Y'all put in a lot of time and effort on this. 9 We very, very much appreciate it and I want to say 10 again, message received. 11 We understand that it's -- we have a 12 duty to work with y'all to make this actually 13 productive. There are over 400 references in the Texas 14 Administrative Code to advisory committees. So what 15 you're doing is not out there in a crazy format. But 16 if those committees don't work with the agencies, 17 they're a waste of time and a waste of statutory 18 treatment, so we pledge to do that and we look forward 19 to working with you in the future. 20 CHAIRMAN KRAUSE: Outstanding. 21 MR. BRESNEN: Thank you, sir. 22 (Applause) 23 MR. BIARD: Chairman, Ms. Kiplin 24 indicated she may want to comment. 25 MS. KIPLIN: I'm fine. Thanks. 0015 1 CHAIRMAN KRAUSE: Do you want to come on 2 up? Our former General Counsel of the Lottery 3 Commission, Kim Kiplin. Minor celebrity here in this 4 room. 5 MS. KIPLIN: Well, Mr. Chairman, thank 6 you so much for the recognition. My name is Kimberly 7 Kiplin, I'm an attorney here in Austin. I'm here today 8 on behalf of the Department of Texas, the Veterans of 9 Foreign War. We stand ready to help any way we can 10 with the Bingo Advisory Committee. We thank you for 11 the meetings and for listening to the information that 12 the bingo industry's provided you. So, much 13 appreciated. Thank you. 14 CHAIRMAN KRAUSE: Thank you, ma'am. 15 AGENDA ITEM VII 16 CHAIRMAN KRAUSE: Let's move on to Item 17 Number VIII. Mr. Biard. 18 MR. BIARD: The next item is actually I 19 believe this is tab VII on the agenda. This is -- 20 CHAIRMAN KRAUSE: Okay. 21 MR. BIARD: These are rules. 22 Commissioners, we have three proposals to amend three 23 Bingo rules. These changes are all generally supported 24 by the Bingo Stakeholder Group and have been discussed 25 with them. 0016 1 The purpose of the proposed amendments 2 to the Bingo Advisory Committee Rule is to update and 3 streamline the BAC member eligibility and appointment 4 procedures and procedural requirements regarding BAC 5 meetings. 6 As noted in the public benefit 7 statement, these changes will provide greater 8 flexibility to the Commission in administering the BAC 9 process to enhance Bingo industry participation and 10 advising the Commission on Bingo issues. 11 The purpose of the proposed amendment to 12 the pull-tab bingo rule is to remove an unnecessary 13 provision requiring detailed information to be provided 14 in a packing slip inside each deal of pull-tab Bingo 15 tickets. These changes will reduce regulation of the 16 manufacture of pull-tab bingo tickets. 17 And the purpose of the proposed 18 amendments to the Bingo Worker Registry rule is to 19 remove the requirement that a provisional employee of a 20 bingo conductor must indicate the playing locations 21 where they are provisionally employed on their Bingo 22 Registry application form and also to extend the length 23 of time a provisional employee who is not a resident of 24 Texas may work without being listed on the Bingo 25 Registry from 45 days to 75 days. This would apply to 0017 1 places like Texarkana where we have workers from 2 Arkansas who are working in Texas bingo halls. 3 These changes will provide greater 4 flexibility to out of state bingo worker applicants and 5 their bingo conductor employers while awaiting results 6 of the applicant's criminal history background check. 7 If you approve publication, we will have 8 a public comment hearing on May 9th. Staff recommends 9 the Commission initiate the rulemaking process by 10 publishing the proposed rule amendments in the Texas 11 Register to receive public comment. 12 CHAIRMAN KRAUSE: Discussion, questions? 13 COMMISSIONER LOWE: Chair, this is a 14 part of our Division's effort to eliminate rules that 15 are not relevant anymore with the -- in the industry. 16 It's part of our effort to have common sense regulation 17 and it's my commitment to continue our efforts to 18 reduce unnecessary regulation, but make sure that what 19 we're doing benefits charities. And so with that, I'm 20 going to move to adopt the rule changes. 21 COMMISSIONER ARRIETA-CANDELARIA: I'll 22 second that motion. 23 CHAIRMAN KRAUSE: All right. So we're 24 going to vote on whether or not to move these rules to 25 public comment, begin the rulemaking process. All in 0018 1 favor say aye. 2 (Chorus of "ayes") 3 CHAIRMAN KRAUSE: Didn't hear any nays, 4 so it passes by acclamation. 5 MR. BIARD: Thank you, Commissioners. I 6 have a T-bar memo for your initials I'll get you to 7 sign. 8 CHAIRMAN KRAUSE: Okay. 9 AGENDA ITEM XIV 10 CHAIRMAN KRAUSE: We passed Item VIII, 11 so we're going on to Item XIV. 12 MR. BIARD: Yes. This is -- this is 13 bingo financial reporting. This is the Bingo Enabling 14 Act Section 2001.060 reporting requirement. That 15 section of the Bingo Enabling Act, Section 2001.060, 16 requires the Commission on or before June 1st of each 17 even-numbered year to prepare and deliver to the 18 Governor, Lieutenant Governor, the Speaker of the House 19 and the Chairs of the standing committees of the Senate 20 and House with primary jurisdiction over Charitable 21 Bingo, a report stating for each of the preceding two 22 calendar years certain bingo financial information as 23 reported by authorized licensed organizations licensed 24 to conduct bingo. 25 The statutorily required information 0019 1 includes adjusted gross receipts, which means gross 2 receipts minus prizes paid; net proceeds, which means 3 adjusted gross receipts minus reasonable and necessary 4 expenses; and net proceeds as a percentage of adjusted 5 gross receipts. This data is noted on some slides that 6 I believe you have copies of at your desk. If you 7 don't, I have some right here, that indicate as 8 reported by the licensed organizations, compiled by the 9 Bingo Division and reviewed by the Agency's Controller, 10 this data shows that in calendar year 2017, adjusted 11 gross receipts were slightly over $186-million, an 12 increase of $4.2-million over 2016. Net proceeds for 13 2017 were just over $34-million, which is an increase 14 of $2.2-million over 2016. And last, for 2017, net 15 proceeds as a percentage of adjusted gross receipts is 16 18.3 percent. 17 Upon your approval, we will proceed with 18 reporting and providing this information to the 19 identified state leadership. That concludes my 20 presentation and this is an action item for your 21 approval. 22 COMMISSIONER LOWE: So Chair, I'll move 23 that we adopt this report as the Commission and forward 24 it to the appropriate source -- appropriate place. 25 COMMISSIONER ARRIETA-CANDELARIA: 0020 1 Second. 2 CHAIRMAN KRAUSE: All in favor say aye. 3 (Chorus of "ayes") 4 CHAIRMAN KRAUSE: No nays. It passes. 5 AGENDA ITEM XIX 6 CHAIRMAN KRAUSE: We are also passing 7 Item XV and we are going to go into Executive Session. 8 At this time I move that the Texas Lottery Commission 9 go into Executive Session to deliberate personnel 10 matters and to receive legal advice, which we always 11 take, as is posted in the open meeting notices. 12 Is there a second? 13 COMMISSIONER LOWE: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of "ayes") 16 CHAIRMAN KRAUSE: We are adjourning to - 17 - we're going into Executive Session. 18 MR. BIARD: And it is 10:20 for the 19 record. 20 CHAIRMAN KRAUSE: 10:20. 21 (Executive Session begins and 10:20 a.m.; 22 Meeting reconvenes at 10:55 a.m.) 23 AGENDA ITEM XX 24 CHAIRMAN KRAUSE: The Texas Lottery 25 Commission is out of Executive Session at looks like 0021 1 10:55. Is there any action to be taken as a result of 2 our Executive Session? And the answer is yes. 3 COMMISSIONER ARRIETA-CANDELARIA: Yes, 4 Mr. Chairman. I move that the Commission appoint Mr. 5 Ed Rogers as the acting Charitable Bingo Operations 6 Director effective immediately and further, that we 7 direct the Human Resources Director to work with the 8 Bingo Commissioner to prepare and post a job posting of 9 the Bingo Director position and that an update be 10 provided at the next Commission meeting. 11 CHAIRMAN KRAUSE: Do I have a second? 12 COMMISSIONER LOWE: Second. 13 CHAIRMAN KRAUSE: All in favor say aye. 14 (Chorus of "ayes") 15 CHAIRMAN KRAUSE: There are no nays. 16 Adopted. 17 AGENDA ITEM II 18 CHAIRMAN KRAUSE: We have some reporting 19 items from Mr. Fernandez. We love hearing from Mr. 20 Fernandez. 21 MR. FERNANDEZ: Good morning, Mr. 22 Chairman, Commissioners. For the record, my name is 23 Mike Fernandez, I'm the Director of the Administration 24 Division. 25 Item Number II in your notebook is an 0022 1 action item. Staff is seeking Commission approval to 2 execute a contract with Latin Works LLC for advertising 3 services. Commissioners have independently confirmed 4 they do not have any financial interest in Latin Works 5 Marketing, LLC. 6 If you have any questions I'd be happy 7 to answer them, Mr. Chairman. 8 CHAIRMAN KRAUSE: Questions? No 9 questions. 10 MR. FERNANDEZ: And that requires a 11 vote. 12 CHAIRMAN KRAUSE: Ah. I thought this 13 was a reporting item. 14 MR. FERNANDEZ: No, sir. This is an 15 action item. 16 CHAIRMAN KRAUSE: Okay. 17 COMMISSIONER ARRIETA-CANDELARIA: I'll 18 so move. 19 COMMISSIONER LOWE: Second. 20 CHAIRMAN KRAUSE: All in favor say aye. 21 (Chorus of "ayes") 22 CHAIRMAN KRAUSE: Approved. 23 AGENDA ITEM III 24 MR. FERNANDEZ: All right. The next 25 agenda item, Item Number III in your notebook, 0023 1 addresses two major contracts. The first again, Mr. 2 Chairman, is an action item. 3 Staff is seeking Commission approval to 4 extend our current contract for the McConnell Jones, 5 LLP for internal audit services for a one year period. 6 Commissioners have also independently confirmed they 7 have no financial interest in McConnell Jones. 8 If you have any questions I would be 9 happy to answer them. Again, that requires a vote of 10 approval, Commissioner. 11 COMMISSIONER ARRIETA-CANDELARIA: So 12 moved. 13 COMMISSIONER LOWE: Second. 14 CHAIRMAN KRAUSE: Okay. Well, so I've 15 got a comment and that is, is that we had a direct 16 report internal auditor on staff and that proved to be 17 very problematic and so when we went to hire an outside 18 internal auditor, then I became very happy about that 19 because we acquired as a result of that, significant, 20 deep and diverse experience that was not available, you 21 know, in a -- in a single person. And so anyway, the 22 -- Darlene's firm has done a great job. They do way 23 more than we had with our internal staff. And so, you 24 know, I'm really happy about what they've been doing. 25 And they've contributed significantly to helping this 0024 1 Commission and both Divisions operate more effectively. 2 So anyway, we have a motion and a 3 second, all in favor say aye. 4 (Chorus of "ayes") 5 CHAIRMAN KRAUSE: All right. Approved. 6 MR. FERNANDEZ: The second contract, Mr. 7 Chairman, under this item is a briefing item. 8 Staff is advising the Commission of our 9 intent to amend the IGT Instant Ticket Manufacturing 10 and Services contract to allow the Agency the use of 11 IGT's content database. There is no associated cost 12 with this amendment and also, Commissioners have 13 independently confirmed they have no financial interest 14 in IGT Instant Ticket Printing and Manufacturing 15 Services. And that was just a briefing item, 16 Commissioner. 17 AGENDA ITEM IV 18 MR. FERNANDEZ: I also have the next 19 item, Item Number IV. This item in your notebook is a 20 briefing item addressing four contracts. 21 We're advising the Commission of staff's 22 intent to extend our current contract with Smith 23 Protective Services, Inc. for security officer services 24 for a one year period. 25 The second contract, staff is also 0025 1 advising the Commission of our intent to extend our 2 current contract with Technology Spa, LLC for website 3 hosting services for a two year period. 4 The next contract, staff would like to 5 also advise the Commission of our intend to extend our 6 Houston Claim Center lease with Weingarten Realty 7 Investors, for a five year period. This is a co- 8 located lease. This -- being administered by the Texas 9 Facilities Commission. 10 And lastly, staff intends to extend our 11 trademark and licensing and promotional agreement with 12 Houston NFL Holdings, the Houston Texans, for a one 13 year period. 14 Commissioners have independently 15 confirmed they do not have any financial interest in 16 any of the four aforementioned contracts. If you have 17 any questions, Commissioners, I would be happy to 18 answer them. 19 CHAIRMAN KRAUSE: Question, comments? 20 Thank you very much. Oh, I have a question. 21 COMMISSIONER ARRIETA-CANDELARIA: I have 22 a question, Mr. Fernandez, on this. 23 MR. FERNANDEZ: Yes, ma'am. 24 COMMISSIONER ARRIETA-CANDELARIA: On the 25 Houston Claims Center lease, that one has -- has that 0026 1 one not been bid out since that time period that is 2 listed? 3 MR. FERNANDEZ: That -- Commissioner, 4 that -- that is a co-located lease, and what occurs 5 there is that the Texas Facilities Commission looks for 6 the best pricing. 7 COMMISSIONER ARRIETA-CANDELARIA: Okay. 8 MR. FERNANDEZ: And moves various 9 agencies that are located in Houston into that, into 10 that lease. And I believe that we have been in that 11 lease, I can verify this, but I believe that we have 12 been in that location since 1994. 13 COMMISSIONER ARRIETA-CANDELARIA: Yes. 14 MR. FERNANDEZ: Quite frankly, we've 15 been there a long time. But they believe that it is 16 still a valid price. We've got a little bit over 2300 17 square feet there. I believe we have 11 staff there, 18 which include four Bingo staff members, and we're 19 paying a little bit over $18 a square foot. 20 COMMISSIONER ARRIETA-CANDELARIA: Okay. 21 MR. FERNANDEZ: So that's -- as long as 22 the Texas Facility Commission encourages to remain, I 23 suspect that we will. 24 COMMISSIONER ARRIETA-CANDELARIA: Okay. 25 Thank you so much. 0027 1 COMMISSIONER RIVERA: The Texans part of 2 the agenda is the reason for the question. When is the 3 -- is the Cowboys also -- I thought it was congruent or 4 is it not? 5 MR. FERNANDEZ: I don't believe those 6 are all the same timeframe. They're different. 7 COMMISSIONER RIVERA: Right. Okay. So 8 but they're signed back up again, correct? 9 UNIDENTIFIED VOICE: Yes. 10 MR. FERNANDEZ: That's correct. 11 COMMISSIONER RIVERA: Okay. Thank you. 12 CHAIRMAN KRAUSE: Way more hoopla around 13 the Cowboys. 14 AGENDA ITEM V 15 CHAIRMAN KRAUSE: Mr. Eric Williams, HUB 16 coordinator. 17 MR. WILLIAMS: Good morning, Chairman, 18 Commissioners. For the record, my name is Eric 19 Williams, the coordinator of the Lottery Commission's 20 Historically Underutilized Business, or HUB program. 21 The HUB program is a statewide 22 initiative that provides assistance in contracting 23 opportunities to minority, women, and service disabled 24 veteran owned businesses. I'd like to provide a brief 25 update on our program before I speak about the minority 0028 1 business participation report. 2 At the beginning of each fiscal year, 3 the Agency sets its annual internal HUB goals as 4 required by the Comptroller's rules. This year's goals 5 and a set of summary reports were sent to you last 6 fall. 7 As part of our outreach to HUBs, the 8 Lottery Commission must also implement a mentor or 9 protégée program. This is an ongoing initiative to 10 match HUB vendors with mentor companies who assist with 11 specific business development goals. 12 Currently, the Lottery Commission has 13 two mentor protégée relationships in place; IGT and 14 Business Asset Enterprises, LP, as well as IGT and 15 Diversified Computer Supplies, Incorporated. The 16 Lottery Commission also conducts an annual HUB forum to 17 provide information and networking opportunities. This 18 event is currently scheduled for June 5th. 19 A copy of the Agency's finalized fiscal 20 year 2017 minority business participation report is 21 included in your notebooks today. This annual report, 22 which is required by Section 466.107 of the State 23 Lottery Act, must be made available to the Governor, 24 Lieutenant Governor, Speaker of the House, and members 25 of the Legislature. It requires your formal approval 0029 1 prior to being printed and published on the Lottery 2 Commission's website. 3 The report documents minority and HUB 4 participation in our Agency contracting activity and 5 also includes information on the number of licensed 6 minority retailers. 7 During fiscal year 2017, the Agency 8 achieved an overall participation rate of 14.21 percent 9 in its minority HUB contracting activity. In addition, 10 of the 18 largest spending state agencies, the Lottery 11 Commission ranked ninth by overall HUB percentage. 12 During this reporting period, the Agency 13 also had 7,849 minority retailers, which represented 14 43.98 percent of the Texas Lottery's total retailer 15 base. 16 I'll be happy to answer any questions 17 regarding the report at this time. 18 CHAIRMAN KRAUSE: Commissioners? 19 COMMISSIONER LOWE: It's a great report. 20 COMMISSIONER ARRIETA-CANDELARIA: Yes. 21 CHAIRMAN KRAUSE: So how do we get 22 LatinWorks back into the HUB status? 23 MR. WILLIAMS: Well, currently 24 LatinWorks has graduated. 25 CHAIRMAN KRAUSE: I know. We're sad 0030 1 about that. 2 MR. WILLIAMS: Yes, sir. So -- 3 CHAIRMAN KRAUSE: That made our numbers 4 look awesome. 5 MR. WILLIAMS: Yes, sir. Yes, sir, that 6 is correct. 7 CHAIRMAN KRAUSE: Alrighty. Do we have 8 a motion to approve this report? 9 COMMISSIONER ARRIETA-CANDELARIA: 10 They're still on the list. 11 CHAIRMAN KRAUSE: Yeah, well, they're 12 not a HUB. 13 COMMISSIONER ARRIETA-CANDELARIA: Oh, I 14 see. 15 CHAIRMAN KRAUSE: Makes our numbers look 16 really good. 17 COMMISSIONER ARRIETA-CANDELARIA: Oh, I 18 see. I see what you're saying. Okay. 19 COMMISSIONER LOWE: Move for approval. 20 COMMISSIONER ARRIETA-CANDELARIA: 21 Second. 22 CHAIRMAN KRAUSE: All in favor say aye. 23 (Chorus of "ayes") 24 CHAIRMAN KRAUSE: Mr. Williams, the 25 report is approved. 0031 1 COMMISSIONER ARRIETA-CANDELARIA: Thank 2 you. 3 MR. WILLIAMS: Yes, sir. 4 CHAIRMAN KRAUSE: Thank you. 5 MR. BIARD: And there's a letter for the 6 Chairman's signature. I'll give it to Eric. 7 CHAIRMAN KRAUSE: Okay. Thank you. 8 AGENDA ITEM IX 9 CHAIRMAN KRAUSE: Item Number IX. 10 Jumping around here. Ms. Rienstra is going to inform 11 us about her doings. 12 MS. RIENSTRA: Okay. Good morning, 13 Commissioners. Deanne Rienstra, Special Counsel. 14 In your notebook is a proposal to amend 15 the current Cash Five Draw Game Rule, which is found at 16 16 TAC §401.308. The purpose of the proposed 17 amendments is to change the Cash Five game matrix, 18 offer guaranteed fixed prizes and set a liability limit 19 for the Match 5 top prize. Robert Tirloni is here to 20 present the changes to this game. 21 MR. TIRLONI: Thanks, Deanne. Good 22 morning, Commissioners. 23 COMMISSIONER ARRIETA-CANDELARIA: Good 24 morning. 25 MR. TIRLONI: I'm going to start with 0032 1 just a brief history of the Cash 5 game. It is one of 2 our older draw games. It was the third draw game ever 3 introduced in Texas back in 1995. It did start as a 5 4 of 39 game. It was drawn two times a week on Tuesdays 5 and Thursdays. Shortly after it was introduced, about 6 a year later, it was changed. It was then drawn four 7 times a week on Mondays and Fridays, in addition to the 8 Tuesdays and Thursdays. So it was drawn every day that 9 Lotto was not drawn. 10 The last time we did a major overhaul on 11 the game was in 2002. We changed it to a 5 of 37 12 matrix and at that time, we made it a daily game. And 13 so it was drawn, and it still is drawn, every Monday 14 through Saturday. 15 So since 2002, we've completed 16 approximately 23 major draw game initiatives, ranging 17 from introducing Powerball and Mega Millions, changing 18 draw days on certain games, launching new draw game 19 promotions. Twelve of those 23 have been multi-state 20 initiatives. And with the recent $2 Mega Millions 21 change that took place in October behind us and no 22 foreseeable multi-state changes in the near future, we 23 think we have some time and we have an opportunity, to 24 be able to tweak this game and improve the matrix and 25 hopefully increase sales for the game. 0033 1 So this is just a snapshot of the last 2 five years of sales for Cash Five. It is on the 3 decline. Like I said, it is one of our older games. 4 Now this looks somewhat negative, but to put it in 5 perspective, Cash Five represents less than 1 percent 6 of total sales for the Agency in a fiscal year. So 7 it's about nine-tenths of 1 percent. 8 So how did we get to the recommendation 9 that I'm going to show you today? We've been doing 10 quite a bit of game research with IGT and their 11 research vendor. We've been working with them about 12 the past 18 months on a myriad of game enhancements. 13 We've been looking at add-on features, Two Step game 14 changes, Cash Five changes. 15 At one point we thought we could 16 actually shrink the portfolio and combine Two Step and 17 Cash Five, since they're both five digit games. That 18 was met with a resounding no by players of those games. 19 They did not like that idea. So out of all of this 20 study, we do believe, though, we have found a Cash Five 21 game that will improve the current offering and will 22 increase sales from where we currently stand. 23 So here's the comparison. This is our 24 current game. This is the 5 of 37. So $1 price point. 25 The proposal is also a $1 price point. It's a 5 of 35. 0034 1 This has been the big challenge for us 2 on the Cash Five game. Most -- four out of -- I'm 3 sorry, three out of the four prize tiers are pari- 4 mutual, so the prize amount is dependent on the sales 5 for the drawing and the number of winners at each tier. 6 So really when you're playing this game, you don't know 7 exactly what you're playing for. We can estimate the 8 prizes, but you -- until the sales are final, and we do 9 the drawing, there's really no knowledge of what you're 10 going to be winning at those prize tiers. 11 On average, the top prize is anywhere 12 from 14 to $16,800 right now. The current odds for the 13 current game one -- are one in eight. 14 If you look at the new game, we feel 15 we've made a big improvement because all of these prize 16 tiers are now guaranteed. So we'll actually be able to 17 market and promote what the prize amounts are for each 18 tier in the game. The odds have -- have improved for 19 the player at every single prize tier and the overall 20 odds of winning have also improved. 21 We do have a liability cap, though, on 22 the top prize. This is similar to the liability cap 23 that we have on All or Nothing, and it's to protect us 24 in case we were to have a large number of top prize 25 winners in one drawing. So the liability cap is set at 0035 1 $75,000. 2 So this is the new proposal. This is 3 what is incorporated in the Rule. I do want to say 4 there's really no silver bullets in the draw game 5 space. It's difficult to come up with new draw game 6 concepts and like we've talked about, it's really 7 difficult to market and promote the draw games at 8 retail. It's basically what we call the invisible 9 product. Everybody knows about the large jackpots when 10 those are increasing. Games such as this are really 11 hard to promote, so I think we have to look for, even 12 if it's small opportunities, to take baby steps and try 13 to improve the health of these games whenever we can do 14 so. And again, I think we have to remember that 15 currently this game is less than 1 percent of sales 16 overall. 17 So we've provided a brief outline for 18 scheduling. If you approve the publication of the Rule 19 in the Texas Register, it will publish towards the end 20 of this month on the 27th. We will have a public 21 comment period and we're actually going to have a 22 public comment hearing, so the public can come and 23 provide us with their comment on this rule proposal. 24 We can bring it back to you all on June 21st at your 25 next meeting for you to consider adopting the rule. 0036 1 And if you choose to do that at that time, we believe 2 we can have this game up and running by the end of 3 September. 4 And that's the presentation. Staff is 5 asking for you to publish the Rule in the Texas 6 Register. 7 COMMISSIONER LOWE: Chair, I have a 8 question. Can you get back to the slide that has the 9 prize matrix on there? 10 MR. TIRLONI: Yes, sir. 11 COMMISSIONER LOWE: So on the righthand 12 bottom column, free Cash Five, Quick Pick -- 13 MR. TIRLONI: Yes, sir. 14 COMMISSIONER LOWE: Changing that from a 15 $2 prize to -- and how much does a Quick Pick cost? 16 MR. TIRLONI: The -- it would be the 17 price of the game. So that would be a $1 Cash Five 18 Quick Pick that you would win. 19 COMMISSIONER LOWE: So you were actually 20 reducing the -- 21 MR. TIRLONI: That is the -- that is the 22 one reduction from the current game to the proposed 23 game. And -- 24 COMMISSIONER LOWE: And it's -- give me 25 a little reasoning behind that. 0037 1 MR. TIRLONI: In order to be able to 2 make these fixed prizes, we had to do that. If we keep 3 this as $2 or if we make this a $2 Cash Five Quick 4 Pick, where we give you basically two boards, we can't 5 achieve the guaranteed prizes for these other tiers. 6 And we thought that was important to do. 7 COMMISSIONER LOWE: Okay. I understand. 8 Do you think you'll get negative reaction from that? 9 MR. TIRLONI: That -- if you were to try 10 to find one negative thing with the new game, that's 11 what people will -- that's what people would point to. 12 But again, we do have a huge challenge with the current 13 game because people just have no idea what they're 14 playing for. And so we had to make the decision about 15 what we thought was in the best interest and we thought 16 in the best interest was being able to actually 17 guarantee those prize amounts to be able to talk to 18 them and have the retailers know what those prize 19 amounts were. 20 So we had a -- you know, there's a 21 limited pool of money. This game is about a 50.9 22 percent payout, so you have -- you have limited funds 23 that you can kind of play around with when you're 24 creating these different prize tiers and these 25 different prize levels. 0038 1 COMMISSIONER LOWE: Okay. Okay. Thank 2 you, Chair. 3 COMMISSIONER ARRIETA-CANDELARIA: I have 4 a question. 5 CHAIRMAN KRAUSE: Please. 6 COMMISSIONER ARRIETA-CANDELARIA: Robert 7 -- 8 MR. TIRLONI: Yes, ma'am. 9 COMMISSIONER ARRIETA-CANDELARIA: -- 10 with regards to the -- just so I'm clear, how much is 11 the cost of a ticket? Is it a dollar? 12 MR. TIRLONI: Yes, ma'am. 13 COMMISSIONER ARRIETA-CANDELARIA: Okay. 14 MR. TIRLONI: It's currently a dollar 15 and it will stay a dollar. 16 COMMISSIONER ARRIETA-CANDELARIA: Okay. 17 I think that -- I think the Free Cash Five Quick Pick, 18 I think that -- that's okay for me. But just my 19 question, with regards to the fixed prize, so just so I 20 understand, if there's three winners, they each get 21 25,000 -- 22 MR. TIRLONI: Yes, ma'am. 23 COMMISSIONER ARRIETA-CANDELARIA: -- at 24 the five match. But if there's four winners, they 25 split 75,000? 0039 1 MR. TIRLONI: Yes, ma'am. 2 COMMISSIONER ARRIETA-CANDELARIA: All 3 right. 4 MR. TIRLONI: That's correct. 5 COMMISSIONER ARRIETA-CANDELARIA: Okay. 6 MR. TIRLONI: And that -- and All or 7 Nothing is set up similarly. Any game that has -- that 8 has a fixed top prize, we -- except Pick Three and 9 Daily Four, but these types of games we're putting 10 prize liability caps on all of those. 11 COMMISSIONER ARRIETA-CANDELARIA: Okay. 12 I think that's good. 13 CHAIRMAN KRAUSE: Where's your question? 14 COMMISSIONER RIVERA: All right. Here 15 we go. The odds of winning, is this our best or lowest 16 odds of winning? Or if not, what is? 17 MR. TIRLONI: On the draw game side, I 18 believe All or Nothing is -- All or Nothing is one in 19 slightly over four. 20 COMMISSIONER RIVERA: Wow. How much is 21 that game? 22 MR. TIRLONI: $2. 23 COMMISSIONER RIVERA: Okay. 24 MR. TIRLONI: So what you -- what that 25 gives you the ability by having a $2 game, you have 0040 1 more money that you have in your prize pool to create 2 more prize tiers. 3 COMMISSIONER RIVERA: So the -- it's 4 called All or Nothing, $2, one in four because the -- 5 nice. Okay. 6 MR. TIRLONI: That's the game where you 7 can win the top prize whether you match all 12 numbers 8 in the game or if you match zero of the numbers in the 9 drawing. 10 CHAIRMAN KRAUSE: Oh, that's right. 11 COMMISSIONER RIVERA: Okay. Perfect. 12 You can tell I'm up here playing a lot of scratch games 13 and -- so all right. (Laughter) 14 MR. BAIRD: Not in Texas. 15 COMMISSIONER RIVERA: Yeah. Lotto, all 16 of it. Okay. 17 CHAIRMAN KRAUSE: Okay. Thank you very 18 much. And so anyway, we are looking for a -- 19 COMMISSIONER RIVERA: Move for approval. 20 CHAIRMAN KRAUSE: Yeah. 21 MS. RIENSTRA: Chairman, I would like 22 to, please, also mention that we will hold a public 23 hearing on May 9th at 9:30 here at the Commission 24 Headquarters. 25 CHAIRMAN KRAUSE: Okay. Well, this -- 0041 1 this is to begin the rulemaking process? 2 MS. RIENSTRA: Correct. 3 CHAIRMAN KRAUSE: All right. 4 MS. RIENSTRA: Yes, sir. 5 COMMISSIONER RIVERA: Move for approval. 6 Good job, Staff. 7 COMMISSIONER LOWE: Second. Thank you. 8 CHAIRMAN KRAUSE: All in favor say aye. 9 (Chorus of "ayes") 10 CHAIRMAN KRAUSE: Approved. 11 MR. TIRLONI: Thank you, Commissioners. 12 I have a T-bar memo for your initials. 13 AGENDA ITEM X 14 CHAIRMAN KRAUSE: Let's see. Next item 15 is Mr. Biard. 16 MR. BIARD: Yes. This is Item X in your 17 notebooks. This is consideration of adopting new Rule 18 403.800 titled Savings Incentive Program. 19 Commissioners, this item is the recommendation to adopt 20 the new Rule without changes to the proposal you 21 approved for publication at the February meeting. 22 The purpose of this Rule is to implement 23 language required by the newly enacted Senate Bill 132 24 by Senator Creighton from the last legislative session, 25 concerning savings incentive programs for state 0042 1 agencies. 2 This program assumes that a state agency 3 is funded to some extent by undedicated general 4 revenue, which our Agency is not. So while currently 5 the Commission has no undedicated general revenue 6 appropriated to it that would allow for a savings 7 incentive program, the statute expressly requires that 8 all agencies, which would include us, enact rules in 9 case such funds are appropriated in the future. 10 We received no written comments to the 11 proposal during the public comment period and recommend 12 that you adopt the new rule. 13 CHAIRMAN KRAUSE: Questions, comments? 14 COMMISSIONER ARRIETA-CANDELARIA: So 15 moved. 16 COMMISSIONER LOWE: Second. 17 CHAIRMAN KRAUSE: All in favor say aye. 18 (Chorus of "ayes") 19 CHAIRMAN KRAUSE: Done. 20 MR. BIARD: Thank you, Commissioners. 21 AGENDA ITEM XI 22 CHAIRMAN KRAUSE: Kathy. We always love 23 hearing from Kathy because it's always about money. 24 MS. PYKA: Good morning, Commissioners. 25 My name is Kathy Pyka, I'm the Controller for the 0043 1 Commission. With me this morning is the Commission's 2 Products Manager Robert Tirloni. 3 Our first slide that we have for you 4 this morning reflects comparative sales through the 5 week ending April 7th, 2018. Total fiscal year 2018 6 sales through this 32-week period are $3,374,000,000, 7 which is an increase of $384-million over last fiscal 8 year. And that is a 12.9 percent increase. 9 Breaking that down by product, our 10 fiscal year 2018 scratch ticket sales reflected on the 11 second orange bar are $2,629,000,000, a $277-million 12 sales increase over fiscal year '17. And it's a growth 13 rate of 11 percent. 14 We've now had scratch ticket sales 15 growth in every week of this fiscal year. And I wanted 16 to note that two weeks ago we set a new scratch ticket 17 sales record with weekly sales of $99.6-million and 18 we've now had seven weeks this fiscal year with sales 19 over $90-million, 13 weeks with sales over $80-million, 20 so that's 20 weeks total this fiscal year with sales 21 over $80-million. 22 Comparing that to last fiscal year, we 23 had 14 $80-plus-million weeks, so we are doing 24 phenomenal in the scratch ticket area. 25 Moving on to draw sales, we've noted 0044 1 those on the blue bar. We're at $744.5-million, which 2 is a $108-million increase, or 17 percent over last 3 fiscal year. And our draw game sales growth is 4 attributed to our multi-state games, which Robert will 5 provide additional detail about as we discuss the 6 product sales this morning. 7 MR. TIRLONI: Thanks, Kathy. Good 8 morning again, Commissioners. So if we break down the 9 $384-million gain year over year, fiscal year over 10 fiscal year that Kathy was just referencing, we're gain 11 -- we have a gain of just under $101-million up in the 12 jackpot portion of the portfolio. So you'll see we 13 have a $63-million gain on Mega Millions. That's 14 mainly attributed to a $521-million jackpot that we had 15 right at the end of last month on March 30th. And then 16 you'll also note a $29-million gain on Powerball. 17 Again, we had a good jackpot runup on 18 both multi-state games in March, so Powerball got up to 19 455-million in the middle of the month on March 17th. 20 So those jackpots are obviously contributing to these 21 large gains and the add-on features for both games are 22 also seeing some nice growth. So that's the hundred 23 million dollar gain. 24 We're seeing some good growth in the 25 daily games, too, which we're very happy about. You 0045 1 know, we don't control the jackpots up in this portion 2 of the portfolio, but this kind of establishes our base 3 week to week. So we really like to see the $1.6- 4 million growth from Pick 3 and the $7.7-million growth 5 from Daily 4 is stellar for these games. 6 Another just quick interesting thing to 7 note is Pick 3. This is our second-oldest draw game 8 and it's just got a real loyal core player following. 9 If you look at the sales, it's a hundred and almost 10 fifty-four million, so you can see it is actually 11 outselling Mega Millions. So that kind of surprises a 12 lot of people. Sometimes we only talk about this once 13 a year at the end of the year, but we thought we would 14 point it out because of the success we're seeing at 15 that product so far this year. 16 So the daily games are up 7.4-million, 17 so that gives us the $108-million growth from the draw 18 game category. And then as Kathy mentioned, we're 19 having phenomenal sales weeks from scratch and we're up 20 almost 277-million. Again, this is through Saturday, 21 April 7th. 22 MR. GRIEF: Robert -- 23 MR. TIRLONI: Yes, sir. 24 MR. GRIEF: Before you go forward, Mr. 25 Chairman, can I add some comments regarding sales? I 0046 1 was going to do that under my report. 2 CHAIRMAN KRAUSE: Now is a good time. 3 MR. GRIEF: But I think now would be a 4 good time. I want to really highlight the results that 5 the Commission is seeing today. 6 We've been working within an advertising 7 budget that has been reduced, as you all know, and it 8 prohibits us from having the luxury of doing any 9 advertising on television. We've also been working 10 under a scratch ticket printing budget that requires 11 that we scramble everyday to ensure that we have enough 12 money to pay for the cost of printing our scratch 13 tickets. But nevertheless, as you've seen in the 14 results that Kathy and Robert have shared with you 15 today, we are tracking to increase sales over last 16 year's record by about a half a billion dollars once 17 the fiscal year ends at the end of August. That is a 18 very heavy lift in the lottery industry, particularly 19 for a state the size of Texas and absent any record 20 setting jackpots this year for Powerball or Mega 21 Millions. 22 And although you can see good increases 23 for both the draw and the scratch game portfolio, 24 scratch tickets continue to be our pathway forward to 25 contributing record amounts of revenue for education 0047 1 and for veterans. 2 I get the question when people see these 3 results, why is that, what is happening, what are you 4 doing to generate these results? And I will tell you, 5 it is our methodology in how we develop our scratch 6 ticket game plan. That includes deciding on what 7 innovations we implement, along with the game themes, 8 play styles, the call outs, the price points, the prize 9 payout percentage, and when we release those games. 10 That methodology that we utilize in partnership with 11 IGT, that is unparalleled in the lottery industry. And 12 that is what has allowed us to continue to generate 13 this kind of revenue, even in the face of those budget 14 cuts that I mentioned earlier. 15 I can also say with confidence that 16 these results would be significantly higher, tens of 17 millions of dollars higher, were we able to more 18 effectively advertise, and were we able to spend more 19 money on our scratch ticket product to make it even 20 more attractive to our consumers. 21 Another significant factor that 22 contributes to our overall revenue generation success, 23 that is our refusal, our staff's refusal, and IGT's 24 refusal, to ever be satisfied with what we're doing 25 today. Although we are a state agency and we're proud 0048 1 of that fact and we operate within those parameters, we 2 approach the business of lottery with a private sector 3 mentality and we look at our shareholders who are the 4 people of the State of Texas, and we feel like they're 5 never satisfied. They are always looking for more 6 revenue for education and to help our veterans. Hence, 7 you saw today the proposed changes for Cash Five. 8 That game is less than 1 percent of our 9 portfolio, but yet we're not satisfied. We want to 10 change that game, we want it to generate all the 11 revenue that it can. 12 We believe that we need to do everything 13 possible to generate the maximum amount of revenue that 14 the Lottery can while staying square within the 15 statutory boundaries of what we're allowed to do. I 16 want to thank Kathy and Robert for their work and all 17 of our staff and our vendors for helping us achieve the 18 results. So, thank you for letting me add those 19 comments, Mr. Chair. 20 CHAIRMAN KRAUSE: You bet. 21 MR. TIRLONI: So Mr. Chairman, 22 Commissioners, I have one last update for you and it's 23 on the Winner Take All feature. So the Multi-State 24 Lottery Association adopted changes to the Powerball 25 game rule last year and that would have introduced a 0049 1 promotional bonus drawing called Winner Take All. 2 In October of 2017, we presented the 3 concept to you all and informed you that we wanted to 4 take advantage of the Powerball Winner Take All 5 marketing efforts and also launch Winner Take All on 6 our own in-state game Lotto Texas. And we believe 7 because both of those games are drawn on Wednesdays and 8 Saturdays, that would be a really good opportunity for 9 us. 10 So we published the rules in the Texas 11 Register in late October and after the 30-day public 12 comment period ended in November. We recommended the 13 adoption of the rules at the December meeting and you 14 did adopt both a Powerball and a Lotto Texas rule that 15 included this Winner Take All feature. We were 16 optimistic about trying the feature to see how it would 17 perform on those two games and we immediately started 18 working closely with IGT on the development of software 19 specifications, play slip design, and numerous other 20 requirements needed to launch that feature on both 21 games. 22 Winner Take All was originally going to 23 start in April of 2018 and then the MUSL membership 24 voted and pushed the date back to September. Another 25 vote was just recently taken in March and at that time 0050 1 the MUSL membership decided to completely cancel the 2 Winner Take All feature. 3 Since we are not able to leverage the 4 marketing synergy that we would have gained from 5 launching Winner Take All on Powerball, we have made 6 the decision to cancel the addition of that feature on 7 the Lotto Texas game as well. And since you previously 8 adopted rules that included this feature, we wanted you 9 -- to keep you apprised of the recent developments. 10 And that's our presentation for today. 11 We're happy to answer any questions that you all may 12 have. 13 CHAIRMAN KRAUSE: Is that on both items? 14 MS. PYKA: I still have the revenue item 15 to discuss. 16 CHAIRMAN KRAUSE: Okay. Thank you. 17 Questions, comments? I'm really proud of our staff. 18 MR. TIRLONI: Thank you, sir. We all 19 appreciate that. 20 CHAIRMAN KRAUSE: Being, you know, 21 smart, innovative and -- 22 MR. TIRLONI: We're trying. 23 CHAIRMAN KRAUSE: Good work. 24 MR. TIRLONI: So we appreciate that very 25 much. Thank you. 0051 1 AGENDA ITEM XII 2 CHAIRMAN KRAUSE: Item XII. 3 MS. PYKA: So we'll move on to the next 4 item. Tab XII includes information on the Agency's 5 transfers to the State. And Commissioners, your 6 notebook included the update through February 28th, but 7 we have completed the March transfer with amazing 8 results, so I'd like to provide an update on the March 9 revenue transfer numbers since that's been wrapped up. 10 So our revenue transfers for the state 11 through March 31st, 2018 amounted to $737.2-million for 12 the first seven months of fiscal year 2018. Out of the 13 $737-million transfer to the state, just under 703- 14 million went out and transferred to the Foundation 15 School Fund, 10.3-million was transferred to the Texas 16 Veterans Commission, with the remaining balance of 24- 17 million transferred for unclaimed prizes. So our total 18 cumulative revenue to the Foundation School Fund 19 through March of this fiscal year now amounts to $21.7- 20 billion. 21 This concludes my presentation. I'd be 22 happy to answer any questions. 23 CHAIRMAN KRAUSE: Commissioners. 24 COMMISSIONER RIVERA: What will that 25 project to for the end of the fiscal year? 0052 1 MS. PYKA: Based on the projection that 2 we're looking at right now, with a minimal sales 3 increase for scratch for the rest of the year, we are 4 looking to break the revenue record of fiscal year 5 2016. 6 COMMISSIONER RIVERA: Awesome. Thank 7 you. 8 MS. PYKA: You're welcome. Thank you, 9 Commissioners. 10 AGENDA ITEM XIII 11 CHAIRMAN KRAUSE: Ms. Brown. 12 MS. BROWN: Good morning, Commissioners. 13 I'm Darlene Brown, Internal Auditor for the Texas 14 Lottery. 15 First, I would like to start with 16 thanking all of you for your support and renewing and 17 extending our contract. We're very happy. And I will 18 switch over to our status report. This is an 19 information item only, no action is needed. 20 Since our last Commission meeting, we 21 have spent quite an amount of time working with the 22 Bingo Operations. We have wrapped up the education 23 audit and released that draft report, expecting 24 feedback on it, probably a little bit more delayed, but 25 it will definitely be presented to you at the next 0053 1 Commission meeting. 2 We've also participated on the Bingo 3 Paperwork Reduction Subcommittee. A lot of great 4 progress there. We're making suggestions to relieve 5 some of the record keeping burdens that the charities 6 are having to do right now. 7 We also continued with a personal 8 identifiable information audit. We will have that 9 wrapped up and bring that report to you at the next 10 Commission meeting. 11 We will begin our social responsibility 12 audit, which includes the responsible gaming program 13 this period also. 14 We are on target to achieve our complete 15 audit plan by August 31st and we will be still 16 projected to be under budget. Right now we're at -- 17 looking at 23 percent of our budget expended. 18 So if you have any questions I'll be 19 happy to answer them. 20 CHAIRMAN KRAUSE: Commissioners? 21 COMMISSIONER ARRIETA-CANDELARIA: No 22 questions. 23 CHAIRMAN KRAUSE: Thank you, ma'am. 24 MS. BROWN: Thank you. 25 COMMISSIONER ARRIETA-CANDELARIA: Thank 0054 1 you. 2 CHAIRMAN KRAUSE: Mr. Grief. 3 MR. GRIEF: Commissioners, other than 4 what's in your notebooks, I have just one other item 5 I'd like to comment on this morning, and that is to 6 formally introduce Ryan Mindell as our acting Lottery 7 Operations Director. Ryan, would you mind coming 8 forward? 9 As you know, Commissioner, Michael Anger 10 recently retired from this position after serving many 11 years of distinction in that role. I wanted to provide 12 you some background on Ryan. 13 Ryan came to us through somewhat unusual 14 circumstances. Ryan is originally from North Carolina, 15 he completed his undergrad and his master's degree work 16 at Duke University, and went on to get his law degree 17 from Duke Law School. He then moved to New York City 18 and practiced law with a couple of different law firms 19 over about a seven year period. And in 2014, now 20 married and with a family, Ryan made the decision to 21 move to Austin where he took a position at our Attorney 22 General's Office as an Assistant Attorney General. 23 My first interaction with Ryan actually 24 came about when he was prepping me for a deposition 25 related to a legal matter that the Commission was 0055 1 involved in and he impressed me with his work at that 2 time. Our General Counsel, Bob Biard, worked much more 3 closely with Ryan on that legal matter and Bob was 4 likewise, impressed, and in August of 2016, Bob 5 recruited Ryan to come work for our Agency in the Legal 6 Services Division, first as an Assistant General 7 Counsel, and then more recently as the Managing 8 Attorney for the Legal Services Division. 9 Since joining our Agency, I've watched 10 Ryan interact with Agency staff on a variety of legal 11 matters, many of those directly Lottery related, and 12 I've been very impressed with his approach and his 13 performance. 14 After he became the managing attorney in 15 the Legal Services Division, he quickly assessed the 16 Division's workload, he met with many of the Division 17 Directors in the Agency, trying to find ways to improve 18 the quality of legal services, and he helped Bob 19 develop a work plan to implement and improve the Legal 20 Services Division overall. 21 In talking to Ryan personally before I 22 appointed him to this position, I also came to discover 23 that he had an opportunity to develop some foundational 24 managerial skills during his time working for the law 25 firms in New York City as well. 0056 1 So knowing for some time that Mike was 2 going to be retiring, I had the opportunity to give 3 serious thought to who might be Michael's successor and 4 I kept coming back to Ryan. After deciding on Ryan, I 5 worked with Jan Thomas, our HR Director, to name Ryan 6 the Acting Lottery Operations Director effective 7 February 12th while Michael was still on board. That 8 allowed more than a month of time for Ryan to shadow 9 Michael at every meeting and in every decision point, a 10 critical time for Ryan to be able to hit the ground 11 running. And that opportunity, along with Ryan's 12 background, his experience, and his work ethic, that's 13 all allowed him to hit the ground running very quickly. 14 And I've been very pleased during his short tenure. 15 Ryan knows I have very high expectations for him and 16 for the Lottery Operations Division going forward. 17 I'd like to ask Ryan if he'd like to 18 make any comments. 19 MR. MINDELL: Thank you, Gary, and thank 20 you for those very nice remarks. Michael had had this 21 position since 2003, so there's some pretty big hiking 22 boots to fill. 23 (Laughter) 24 MR. MINDELL: But I did have the time to 25 shadow him and, you know, having an -- almost an entire 0057 1 month was invaluable because I got to see almost 2 everything that Michael did on a daily basis at least 3 once throughout that time. And the other thing that 4 I've been able to do is see the impressive quality of 5 the staff and managers in Lottery Operations Division. 6 And the results that you're seeing based on, you know, 7 these levels of sales is no accident and it shows the 8 performance and the quality of the people that I'll be 9 working with everyday in Lottery Operations. 10 And last, I'm just incredibly excited 11 and fortunate to have this opportunity and I really -- 12 I'm excited about it. So thank you, Gary. 13 MR. GRIEF: Thank you, Ryan. 14 COMMISSIONER ARRIETA-CANDELARIA: Thank 15 you. 16 MR. GRIEF: That concludes my report, 17 Mr. Chairman. 18 CHAIRMAN KRAUSE: Thank you. 19 AGENDA ITEM XVII 20 CHAIRMAN KRAUSE: I guess we have our 21 enforcement issues which is going to be presented in a 22 very concise manner. 23 MR. BIARD: Yes, Commissioners. Item 24 XVII contains 19 Lottery and Bingo enforcement matters, 25 Tabs A through S. In these cases, Commission staff 0058 1 either found a licensee violated a statute or rule or 2 an applicant did not qualify for a license. I'll 3 briefly describe the cases and you can take them up in 4 a single vote if you like. 5 Tabs A through H are the non-sufficient 6 fund lottery retailer license revocations handled in a 7 single order. Each case was presented at the State 8 Office of Administrative Hearings for revocation of the 9 retailer license on the grounds the licensee failed to 10 have sufficient funds in their bank account to cover 11 electronic fund transfers to the Commission's account. 12 In each case, the licensee failed to appear and the 13 Judge remanded the case to the Commission to handle as 14 a default matter. Your notebook contains a single 15 order to revoke each of those eight licenses. 16 Tabs I through O are seven Lottery 17 agreed orders. I'll go through each one briefly. 18 Tab I is Alma One Stop in Ellis County. 19 In this case, the retailer employee did not pay a 20 customer correct prizes on three winning tickets. A 21 Commission investigator visited the store and attempted 22 to claim the tic -- three tickets worth a total of $20. 23 The clerk said the prizes totaled $15 and handed the 24 investigator incorrect validation slips showing $15 in 25 prizes. The licensee terminated this employee after 0059 1 this activity was brought to their attention. 2 The violation is failure to pay the 3 amount of an authorized prize and the agreed penalty is 4 a 10-day suspension. 5 Tab J is Grab N Go in Dallas County. In 6 this case, a retailer employee allowed customers to 7 purchase Pick 3 draw tickets -- draw game tickets over 8 the phone. One of the phone customers won a $790 prize 9 and asked the employee to claim it for them. The claim 10 center personnel detected an issue with the ticket 11 because the customer's name was written on it. The 12 violations here are extending credit to purchase a 13 lottery ticket and selling tickets over the telephone, 14 and the agreed penalty is a 10-day suspension. 15 Tab K is Express 146 in Galveston 16 County. In this case, a retailer employee bought a 17 $100 winning ticket from a customer for $50. The 18 employee attempted to cash the ticket at his own store 19 but the terminal indicated the ticket was stolen. The 20 employee went to the Houston Claim Center and tried to 21 claim the prize, falsely stating someone gave him the 22 ticket. The violations are claiming a prize by fraud, 23 purchasing a lottery ticket from a person other than a 24 licensed retailer, and endangering the security and 25 integrity of lottery games. The agreed penalty is a 0060 1 30-day suspension. 2 Tab L is Payless Super Market in Harris 3 County. In this case, a customer at the retailer's 4 store tried to claim a ticket with a $1000 prize and 5 the owner officer of the store paid him $500 and said 6 the other $500 was a fee to cash the ticket. The owner 7 then took the ticket to the Houston Claim Center, 8 falsely stating he had purchased the ticket at a 9 licensed retail location and that no one else was 10 entitled to claim the prize. 11 The licensee later removed this person 12 as both owner and officer and he's no longer employed 13 at that store. The licensee also paid that customer an 14 additional $500. The violations are claiming a prize 15 by fraud, purchasing a lottery ticket from a person 16 other than a licensed retailer, and endangering the 17 security and integrity of lottery games. The agreed 18 penalty is a 30-day suspension. 19 Tab M is Kwik Pik Food Store Coppell in 20 Dallas County. In this case, a local police officer 21 played a gaming machine located at the retailer's store 22 and exchanged a ticket won on the machine with a value 23 of $35 for cash and one Super Loteria ticket. 24 The violations are accepting an 25 unauthorized form of payment for a lottery ticket, and 0061 1 endangering the security and integrity of lottery 2 games. The licensee agreed to a 30-day suspension. 3 Tab N is Amigo Mart in Harris County. 4 In this case, in 2016 a retailer employee refused to 5 sell a lottery ticket to a customer after 10:00 p.m., 6 even though the store was open until midnight. The 7 Commission sent the retailer a warning letter. 8 Then, the next year, a Commission 9 investigator attempted to purchase lottery tickets at 10 that same store after 10:00 p.m., and also was told 11 that lottery sales were closed for the day. The 12 violation is refusing to sell lottery tickets during 13 all normal business hours. The licensee agreed to a 14 10-day suspension. 15 And the last lottery order is Shop N 16 Save in McLennan County. In this case, a relative of a 17 licensee store owner tried to claim a $1000 winning 18 ticket at the Dallas Claim Center. He represented that 19 he bought the ticket, but the staff noticed alterations 20 on the ticket and damage on the signature name lines. 21 Our investigation determined that a clerk at the store 22 had paid a couple $500 for the ticket and gave the 23 ticket to the store owner's relative to claim. The 24 violations are claiming a prize by fraud and purchasing 25 a lottery ticket from a person other than a licensed 0062 1 retailer, and the agreed suspension is for 10 days. 2 Next, the final items here are Bingo 3 Orders. Tab P is a Bingo agreed order for AmVets Post 4 52, Inc. This came to you at the last Commission 5 meeting and you voted to revoke the organization's 6 license. Mr. Fenoglio indicated that he was going to 7 file a motion for re-hearing, which he did. And since 8 that time, the Bingo Division agreed to settle the 9 matter with an agreed order suspending the license for 10 one year from the date of that February 8th Commission 11 meeting. 12 Tab Q is Catholic War Veterans Post 770, 13 J.L. Garza, Inc. of Weslaco. This was a litigated case 14 on an application to renew a conductor's license. The 15 case focused on the applicant's failure to meet the net 16 proceeds requirement. The organization requested a 17 waiver that was missing many key pieces of information. 18 Staff gave the organization an opportunity to 19 supplement, but the supplemented information was also 20 incomplete. 21 The Director denied the waiver request 22 and the organization requested a hearing. The Judge 23 recommends denying the renewal application and 24 Commission Staff supports that recommendation. 25 The final two matters, Tabs R and S, are 0063 1 both Bingo worker cases and they're both defaults. 2 These are cases to remove the individuals from the 3 Registry of approved bingo workers. 4 In Tab R, Alashandra Gardley worked 5 bingo occasions after her registry listing expired. 6 She was later re-listed on the Registry after which 7 time her prior violation was discovered. She did not 8 appear at the hearing. 9 In Tab S, Harold Adams was found guilty 10 of theft in 2017, which is a state jail felony. He 11 also did not appear at the hearing. 12 In both of these cases, the Judge 13 remanded the case back to the Commission to handle as a 14 default matter. The staff recommends removing these 15 individuals from the Bingo Registry. 16 That concludes my presentation and you 17 may take all these up in a single vote if you'd like, 18 unless you have any questions. 19 CHAIRMAN KRAUSE: I'm sure that we've 20 got many questions and so I'm ready to hear them. 21 COMMISSIONER LOWE: I have no questions. 22 CHAIRMAN KRAUSE: Our inquisitive 23 Commissioners feel like your summation was wonderful. 24 Thank you. 25 MR. BIARD: Thank you. 0064 1 CHAIRMAN KRAUSE: So I'm looking for a 2 motion to approve staff's recommendation on these many 3 and well-informed items. 4 COMMISSIONER LOWE: Move for approval. 5 COMMISSIONER ARRIETA-CANDELARIA: 6 Second. 7 CHAIRMAN KRAUSE: All in favor say aye. 8 (Chorus of "ayes") 9 CHAIRMAN KRAUSE: Staff's recommendation 10 is hereby approved. 11 AGENDA ITEM XVIII 12 CHAIRMAN KRAUSE: We have one last thing 13 that we have in this meeting and that is we have some 14 public comment. We love public comment. And so, Kris 15 Keller is here to visit with us today. And we're ready 16 to hear from Mr. Keller. 17 COMMISSIONER ARRIETA-CANDELARIA: He's 18 left. 19 CHAIRMAN KRAUSE: Mr. Keller has left 20 the building apparently. And so, anyway, he had a 21 comment, one concern about bingo. A bingo rule that's 22 not on our agenda and we are always ready for public 23 input and we will always want to know what the public 24 thinks about the rules. 25 AGENDA ITEM XXI 0065 1 CHAIRMAN KRAUSE: So anyway, that being 2 the case, I feel empowered to make my own motion to 3 adjourn this meeting. And all I'm looking for is a 4 second. 5 COMMISSIONER LOWE: Second. 6 CHAIRMAN KRAUSE: All in favor say aye. 7 (Chorus of "ayes") 8 CHAIRMAN KRAUSE: We are adjourned and 9 it is quarter of 12:00. 10 (Adjourned and concluded at 11:45 a.m.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0066 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF HARRIS ) 4 5 I, Kimberly C. McCright, Certified Vendor and 6 Notary in and for the State of Texas, do hereby certify 7 that the above-mentioned matter occurred as 8 hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of 10 such were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 19th day of April, 2018. 16 17 /s/ Kimberly C. McCright Kimberly C. McCright 18 Certified Vendor and Notary Public 19 Verbatim Reporting & Transcription, LLC 1322 Space Park Drive, Suite C165 20 Houston, Texas 77058 281.724.8600 21 22 23 24 25