0001 1 TRANSCRIPT OF PROCEEDINGS BEFORE THE 2 TEXAS LOTTERY COMMISSION AUSTIN, TEXAS 3 4 REPEAL OF 16 TAC § 402.603 ) AMENDMENTS TO 16 TAC § 402.400 ) 5 NEW 16 TAC § 402.305 ) AMENDMENTS TO 16 TAC § 402.300 ) 6 7 8 PUBLIC COMMENT ON RULEMAKINGS 9 THURSDAY, JANUARY 18, 2007 10 11 BE IT REMEMBERED THAT on Thursday, 12 the 18th day of January 2007, the above-entitled 13 public comment hearing was held from 11:20 a.m. to 14 12:24 p.m., at the Offices of the Texas Lottery 15 Commission, 611 East 6th Street, Austin, Texas 78701, 16 before SANDRA JOSEPH, ASSISTANT GENERAL COUNSEL. The 17 following proceedings were reported via machine 18 shorthand by Patricia Gonzalez, a Certified Shorthand 19 Reporter of the State of Texas, and the following 20 proceedings were had: 21 22 VOLUME 1 PAGES 1 - 47 23 24 25 0002 1 APPEARANCES 2 ASSISTANT GENERAL COUNSEL: 3 Ms. Sandra Joseph 4 ASSISTANT DIRECTOR, CHARITABLE BINGO 5 OPERATIONS DIVISION: Mr. Philip D. Sanderson 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 Proceedings, Thursday, January 18, 2007 4 4 Opening Remarks by Ms. Sandra Joseph 4 5 Comments by Steve Bresnen 9 6 Comments by Ronnie Baker 18 7 Comments by Stephen Fenoglio 20 (Fenoglio Exhibit 1 marked) 22 8 Comments by Suzanne Taylor 37 9 (Taylor Exhibits 1 and 2 marked) 41 10 Comments by Jane Thompson 45 11 Proceedings recessed 47 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0004 1 P R O C E E D I N G S 2 THURSDAY, JANUARY 18, 2007 3 (11:20 a.m.) 4 MS. JOSEPH: Good morning. This hearing 5 will now come to order. My name is Sandra Joseph, 6 Assistant General Counsel, and with me is Phil 7 Sanderson, Assistant Director of the Charitable Bingo 8 Operations Division. We are here this morning to 9 consider comments to four proposed rulemaking 10 proceedings that were published in the Texas Register 11 on December 29th, 2006. 12 The first rule that I would like to 13 mention briefly is Rule 402.300 which concerns 14 amendments to the pull-tab rule. I would like to 15 advise those present, in case you weren't aware of it, 16 that the Commissioners did have on their agenda for 17 consideration at their meeting, which was scheduled 18 earlier this week, an item pertaining to this rule. 19 As you know, we did have inclement weather. The 20 Commission was unable to meet, and, in fact, this 21 hearing is starting two hours later than was scheduled 22 originally. This hearing was scheduled for nine 23 o'clock. Due to the poor weather, the Commission did 24 not open this morning until 10:00 and we had posted on 25 our website that we would begin one hour after 0005 1 opening. It's now about 11:20. 2 In regards to the pull-tab rule, the 3 Commissioners had posted an item for consideration 4 concerning whether or not to withdraw the proposed 5 amendments to the pull-tab rule and possibly publish 6 another version of that. I would like to read into 7 the record a letter that the Commission received from 8 Senator Jane Nelson which will provide some insight 9 for the Commissioners' reason for posting that item 10 for consideration. This is a letter dated 11 December 22nd, 2006, addressed to Mr. C. Thomas Clowe, 12 Chairman of the Texas Lottery Commission. 13 "Dear Mr. Clowe: 14 "I'm writing today to express my 15 profound concerns regarding recent actions of the 16 Texas Lottery Commission. On December 13th, 2006, the 17 Commission approved proposed rule amendments for 18 charitable bingo which would, in the opinion of many, 19 have the effect of altering Texas Administrative Code 20 definitions of pull-tab bingo from those reflecting an 21 actual ticket to provisions more appropriate for an 22 altered or electronic version of the game. 23 "Rule amendments proposed by the 24 Commission would delete standard language for pull-tab 25 bingo such as face and reverse, instead substituting 0006 1 terms such as video confirmation and digital 2 representation. These changes could lead to radically 3 different types of bingo" -- "of paper bingo or 4 electronic involvement. Your 2007-2011 Strategic Plan 5 refers to progressive bingo, restructured pull-tabs, 6 and electronic bingo as possible 'opportunities' for 7 future adoption. In addition to 'opportunities' in 8 the area of bingo, the 2007-2011 Strategic Plan also 9 references internet-based games, handheld devices and 10 compact disk products." 11 "Please let me make it clear that I will 12 oppose any expansion of gambling beyond current 13 statutory and historical parameters. I find it 14 particularly troubling that the Commission would take 15 any steps toward electronic bingo as the Texas 16 Attorney General ponders a request for his opinion 17 regarding the constitutionality of bingo expansion. 18 Previous attempts to implement electronic versions of 19 lottery, for instance, have been rebuffed by the 20 Attorney General as needing voter approval. I would 21 strongly encourage you to pull down any current 22 proposed rule changes that alter the nature of a 23 particular game or add any new type of wager until the 24 Legislature has the opportunity to meet on these 25 topics in 2007. Thank you for your attention to this 0007 1 request. Please do not hesitate to contact me if you 2 have any questions or need further information. 3 "Very truly yours, Senator Jane Nelson," 4 with copies to Commissioner James A. Cox and 5 Mr. Anthony J. Sadberry. 6 I would also like to read, for your 7 information, the response that was sent to Senator 8 Nelson by the Chairman, James A. Cox, Jr. This letter 9 is dated January 9th, 2007. 10 "Dear Senator Nelson: 11 "As the newly-designated presiding 12 officer of the Texas Lottery Commission, I am writing 13 to thank you for your letter in which you expressed 14 your concerns about the proposed rule amendments for 15 charitable bingo. 16 "Speaking as one member of the 17 Commission, I assure you that when I voted to publish 18 the proposed rule amendments, it was not my intention 19 to support any expansion of gambling beyond current 20 statutory parameters. It is my understanding that the 21 language of the rule as currently proposed would 22 permit only a graphical or digital display of an 23 outcome with no effect whatsoever on the result of the 24 winning or losing ticket. 25 "Nevertheless, I have requested that an 0008 1 item be added to the agenda for next week's Commission 2 meeting scheduled for Wednesday, January 17th, 2007. 3 This agenda item will permit discussion and 4 deliberation of the possible withdrawal of the 5 proposed rule, as well as republication of revised 6 language in a form that will address the concerns 7 expressed in your letter. We will inform you 8 immediately of any action taken by the Commission. 9 "Again, thank you for taking the time to 10 write, and for your past and continued interest in the 11 Texas Lottery Commission. 12 "Sincerely, James A. Cox, Jr., 13 Chairman." 14 All right. I would like to offer the 15 opportunity to you to comment on the concerns raised 16 by Senator Nelson and any comments that you would like 17 to offer to the Commission regarding the rule that was 18 proposed in the Register on December 29th, 2007. 19 In addition to amendments to the 20 pull-tab rule, we're also here to hear comments on 21 Proposed New Rule 402.305 relating to progressive 22 bingo, Rule 402.400 concerning amendments to the 23 general licensing provisions rule and repeal of Rule 24 402.603 pertaining to bonds or other security. 25 I have three witness affirmation forms 0009 1 that have been presented to us thus far. The first 2 one is from Steve Bresnen. In just a moment, I will 3 ask Mr. Bresnen to offer his comments. 4 I would like to mention that the copy of 5 the rule on the outside table of the pull-tab rule is 6 not the version that was published in the Texas 7 Register. We are getting copies made of the pull-tab 8 rule as it was published in the Texas Register and 9 we'll let you know when those are available, to be 10 sure you have the correct copy. 11 Although this is not an evidentiary 12 hearing, I would like to swear anyone in as a witness 13 who plans to offer comments today. At this time, if 14 you plan to or think you might possibly offer 15 comments, would you please raise your right hand. 16 (Hands raised) 17 MS. JOSEPH: Do you solemnly swear that 18 the testimony you will give today will be the truth, 19 the whole truth and nothing but the truth? 20 CHORUS OF VOICES: I do. 21 MS. JOSEPH: Thank you. 22 Mr. Bresnen, we are ready to receive 23 your comments. 24 MR. BRESNEN: Thank you. I appreciate 25 the opportunity to comment today. My name is Steve 0010 1 Bresnen. I'm here on behalf of the Bingo Interest 2 Group and it is my understanding that there will be 3 additional -- another public hearing. We have a lot 4 of people involved in charitable bingo that were 5 scheduled to be here yesterday and today, and because 6 of the weather, we called that off. So I understand 7 we're working on another date sometime in the future 8 where we might have -- 9 MS. JOSEPH: Yes. 10 MR. BRESNEN: -- ample opportunity to 11 get those folks here. 12 MS. JOSEPH: Yes. Excuse me just a 13 minute. I'm glad you mentioned that. I meant to 14 mention that originally. 15 We will convene tomorrow at 9:00 a.m. in 16 case there's anyone who was able -- is able to make it 17 tomorrow that would like to offer comments. In 18 addition, we will schedule another date and provide 19 public notice of that hearing. We want to be sure 20 everybody has an opportunity to comment that may have 21 been, you know, prohibited from doing so by the 22 weather. 23 Thank you. 24 MR. BRESNEN: Thank you. 25 It's not -- because we're going to have 0011 1 an additional hearing, it's not my intention to cover 2 everything in each of the rules today, but I would 3 like to at least make this, today, productive, since 4 you-all have gone through the trouble to follow 5 through. 6 Do you want us to address all the rules 7 while we're sitting here instead of coming back for 8 each different rule? Does that work for you? 9 MS. JOSEPH: That will be fine with us. 10 If you would prefer -- if that would work better for 11 you, then please go ahead and do that. 12 MR. BRESNEN: Okay. Addressing the bond 13 or security rule on behalf of the Bingo Interest 14 Group, which represents bingo halls and the 15 participants in them from Texarkana down to the 16 Dallas/Fort Worth area out to Midland, Odessa down to 17 Austin, I would like to say that we support the bond 18 or security rule. That's the amendment to 402.063 19 (sic) -- or the repeal of it. 20 As you know, there's the bonding 21 requirement that -- the Commission set the bonding 22 requirement at three times the amount of the tax that 23 was going to be due. You've had ample information in 24 front of the Commission that bonds are expensive, the 25 security is hard to -- hard to achieve. It's probably 0012 1 a barrier to entry for some charities to get involved, 2 and it certainly cuts into the bottom line for the 3 charities; so the repeal of that rule should help the 4 charities do better and the risk to the state is 5 infinitesimally small, as proven over time. So we 6 would support adoption of that -- of the proposal on 7 402.603. 8 We would also support the proposed rule 9 on 402.400 that deals with licensing. Allowing the 10 eligibility determination before a location, date and 11 times are chosen, we think, will strengthen the hand 12 of the charities and it will show them early on 13 whether they qualify or not before they've tendered 14 the full licensure amount, help them become more 15 acquainted with what the rules are and what's required 16 to be eligible to play bingo and then allow them to 17 quickly go to locations where they might play and 18 notify the Commission and get their final licensure. 19 So, once again, we think this will streamline and make 20 things easier on the charities and reduce some 21 barriers to entry out there. 22 Now, addressing the -- let's see. 23 There's four of them and I must be missing one. 24 (Brief Pause) 25 MR. BRESNEN: No. One of them is on 0013 1 progressive bingo and I'll go ahead and address that, 2 402.305. 3 Generally speaking, we've been in 4 support of the adoption of progressive bingo in the 5 state. People are -- people have been planning. I 6 think it's legal to do it. To give some parameters to 7 it is probably a good thing, but I will come back, I 8 think, with some specific criticisms of some of the 9 recordkeeping requirements in the rule. We don't want 10 to swallow up an existing practice that's proved 11 productive for the charities with additional 12 regulation and recordkeeping that will either drive up 13 the cost or discourage the use of it; so we'll come 14 back with you -- to you with some specific examples or 15 citations or suggestions about how that rule might be 16 improved. 17 And, finally, addressing the new 18 pull-tab rule, 402.300, we strongly support the 19 adoption of this rule. And at the risk of taking 20 apart Senator Nelson's letter before I've had a chance 21 to talk to her about it -- I just got the copy of the 22 letter and it's been difficult to get ahold of people 23 at the Capitol Building the last few days with the 24 weather like it is, but I think it reflects a 25 misunderstanding of the rule, its purpose and the 0014 1 details of it as well as what was requested in the 2 Attorney General's opinion and I'd like to clarify 3 those for a moment. 4 I believe that Commissioner -- Chairman 5 Cox has it right, that with respect to the video piece 6 of this, that all it allows is a video confirmation. 7 It does not displace the statutory requirement that 8 there be a paper pull-tab ticket as required in the 9 statute to be made of paper or paper products. 10 Essentially, I think the statute requires something 11 that's laminated or pops open. That's clearly 12 retained. We have no intention to displace that game. 13 I might say that one purpose of this 14 rule is to improve the production to the charities out 15 there; hopefully, their sales will increase. If every 16 time sales increase is an expansion of gambling, then 17 it seems to me that only the status quo or further 18 decline in what's happening to charities in this state 19 would satisfy the "can't be an expansion of gambling" 20 rule. I don't think the Commission or its staff would 21 have proposed this rule, published it in the Register 22 if it was not within the statutory authority of the 23 Commission to adopt, and I don't think there's any 24 doubt that it is. 25 The Attorney General's opinion request 0015 1 was specifically about an electronic pull-tab 2 amendment which I passed twice in the Texas Senate 3 with 25 votes. So even opposition to that does not 4 reflect a majority of the opinion of the Texas Senate, 5 at least as of last spring. 6 That pull-tab amendment allowed for 7 games to be generated completely electronically and 8 disseminated throughout terminals in a bingo hall. 9 This pull-tab amendment does not do that. It merely 10 allows the result of a game to be displayed on a video 11 terminal and it also allows a player to select a 12 prize. And as you know, in the event ticket arena, 13 once the player has won, they know they've won, then 14 they go -- the second subsequent activity under the 15 current rule is to go and select the prize, and they 16 would merely be able to do that through a video 17 display. 18 We have electronic involvement in the 19 bingo hall today. It's called a "cardminder." It's 20 been there for 11 years. Nobody thinks that a 21 cardminder is not bingo and nobody should think that a 22 video confirmation of a winning pull-tab ticket is an 23 electronic pull-tab game of what we attempted to put 24 in the statute last spring. 25 I think, having said that, I will end my 0016 1 comments with respect to Senator Nelson's rule -- 2 letter and strongly request adoption of the rule. 3 Bingo has declined substantially since 4 1995 with the advent of the Lottery. Nobody keeps the 5 Lottery from routinely adopting changes in Lottery 6 games and new games, the payout structure of the 7 prizes that are awarded, the structures of the games 8 themselves, the new artwork, new everything, and 9 you -- and the Lottery side of this Agency is able to 10 do so with very little -- very few barriers. You 11 don't have to come to the Commission very often on 12 those things. You're able to process them quickly 13 through your outside vendors. On the bingo side, we 14 have a laborious process to get any kind of new 15 product out there to the bingo players. 16 Taking the position that bingo should be 17 in a retarded condition when it comes to reaching the 18 marketplace with new products is tantamount to saying 19 that the Texas Lottery, the state-run gambling 20 operation, ought to have precedent over Texas 21 charities, and I strongly disagree with that. The 22 Legislature and the people of Texas amended the 23 Constitution and put in place the Bingo Enabling Act 24 long before state-run Lottery was put in place. And I 25 don't think there's any evidence that the voters of 0017 1 Texas intended to put charities in second place when 2 it comes to raising money in this state. 3 Furthermore, an effort to stifle, stymie 4 or deteriorate the productivity of charities in this 5 state is nothing more than giving favor to those 6 interests who would like to either keep the foothold 7 that they have over the charities and gambling in 8 Oklahoma and Louisiana and keep them down in the hopes 9 that they could eventually come and take over a market 10 in Texas. And that's unfortunate. It's unfair and it 11 does a disservice to the people in this state who 12 provide services to Veterans and homes for abused 13 spouses and riding schools for retarded children and 14 those kind of things that shouldn't be tolerated by 15 this Commission. 16 It's within your authority to adopt this 17 rule. It will help the charities. It will improve 18 accountability. Right now, there's some slippage out 19 there -- we know it -- when it comes to sale of 20 pull-tabs, and by having these -- a new electronic 21 system out there that can do the accounting that's 22 provided for in this rule, it will help to prevent or 23 eliminate that slippage. 24 So we strongly support the rule. I'll 25 come back with specific comments on specific elements 0018 1 of the rule at a later date. Thank you. 2 MS. JOSEPH: Thank you, Mr. Bresnen. 3 Ronnie Baker. 4 MR. BRESNEN: Thanks. 5 MR. BAKER: Good morning. 6 MS. JOSEPH: Good morning. 7 MR. BAKER: Thank you for hearing our 8 comments. 9 My name is Ronnie Baker. I represent 10 Thompson Allstate Bingo Supply. We have locations 11 throughout the state of Texas and I cover the entire 12 state. 13 I'm here to speak on behalf and support 14 of Rule 402.300 concerning pull-tabs; specifically, 15 the video enhancement. And several things strike me 16 as being -- they need to be spoken to. 17 About eight years ago, I came before the 18 Commissioners and presented a product that was 19 considered radical. It could even -- Senator Nelson 20 may even have called that product "enhanced gaming," 21 And it was called the "event ticket." It took 22 almost -- close to two years to get it approved. It's 23 been unbelievably successful. It's generated 24 thousands of dollars in revenue for the charities, as 25 well as the state, and it's something that was new, 0019 1 much as paper was new to hard cards. 2 Senator Nelson's comments about the 3 expansion of gaming using the electronic medium I find 4 very concerning, simply because we presently use a 5 bingo cardminding device to show winners on our bingo 6 games. This is not enhanced gaming. The event ticket 7 in itself, the medium that we're talking about, is a 8 medium to show the winners and not bring any type of 9 new game to the State of Texas. 10 I would invite Senator Nelson to come 11 with me to a half a dozen bingo halls that I presently 12 service, and specifically the ones along the 13 Louisiana, Oklahoma and New Mexico border, and see 14 what the proliferation of native gaming has done to 15 those bingo halls. I could take you to a hall where 16 we have handheld computers right now that do show the 17 winning cards and show you that every time a new 18 casino opens, be it Winstar or be it the Coushattas, 19 we see a correspondingly big drop in the number of 20 players. 21 The concern is -- and I'll take one hall 22 in particular, which is Flamingo Bingo in Sherman, 23 Texas. And the alcohol support services there 24 ministers to somewhere in the neighborhood of 100 25 clients with, both, drug- and alcohol-related 0020 1 problems. When we lose 50 players across the state 2 line, their revenue goes down. Before we had the 3 event ticket, that hall, Flamingo Bingo, was in danger 4 of actually shutting its doors and telling its clients 5 to go somewhere else. The event ticket helped them 6 keep their doors open. The expansion of enhanced 7 gaming, to me, is a wooden horse, because that's just 8 not true, Senator Nelson. 9 We support the video enhancement simply 10 because it brings another medium to the game. It 11 allows customers to be more involved. It doesn't -- 12 it doesn't alter the rule one iota. Thompson Allstate 13 Bingo Supply supports that rule and we look forward to 14 speaking on it at the next meeting. 15 Thank you very much. 16 MS. JOSEPH: Thank you, Mr. Baker. 17 Suzanne Taylor. 18 MS. TAYLOR: I'd like to defer my 19 comments at this time until after Stephen Fenoglio. 20 MS. JOSEPH: Stephen Fenoglio. 21 MR. FENOGLIO: Good morning, Ms. Joseph, 22 Mr. Sanderson. For the record, my name is Stephen 23 Fenoglio. I filed an appearance slip. And we had 24 either voicemail communication or live communication 25 about the weather, and so I advised most of my clients 0021 1 not to show up today and I believe almost all of them 2 elected not to do so. And we have spoken with 3 Ms. Kiplin about a mutually convenient date for the 4 third day of comment and we anticipate that the end of 5 this month as far as what we would prefer. 6 First, on the two rules, the bond rule 7 and the general licensing, we support those. We 8 understand, as far as the bond is concerned, that the 9 staff is going to come forward with a new bond rule to 10 replace that and we look forward to working with the 11 staff on that. I do believe the existing bond rule 12 provisions as it relates to a bond for a licensed 13 authorized organization is in desperate need of 14 refinement and we look forward to actively 15 participating with that refinement. 16 Separately, I'm -- there's a bond 17 requirement for -- I believe it's the manufacturers. 18 It may be that that -- they'll no longer need a bond 19 since they don't collect any taxes that are owed to 20 the State of Texas. I'm not aware that there's ever 21 been a concern raised about the bond requirements for 22 a commercial lessor here, and, as you know, I 23 represent a number of commercial lessors, but 24 certainly the licensed authorized organization bond 25 requirement needs to be changed and refined and we 0022 1 salute the staff for recognizing that. 2 On the general licensing provisions, we 3 think you've got it right as far as the language is 4 concerned, and thank you for that. 5 I'm going to defer most of the comments 6 on the remaining two rules until I've had a time to 7 meet with clients. We had set up a series of meetings 8 on Tuesday and Wednesday which got rescheduled because 9 of the ice storm in Austin, but I do want to respond 10 to one thing. And, Ms. Joseph, I brought with me a 11 copy of a letter that was sent to Chairman Cox from 12 the Veterans of Foreign Wars of the United States, 13 Department of Texas, and I'll be happy to e-mail that 14 document to you. 15 MS. JOSEPH: All right. I would like 16 to -- for purpose of clarity of the record, I'll mark 17 this as Exhibit 1 for Mr. Fenoglio. 18 (Fenoglio Exhibit 1 marked) 19 MR. FENOGLIO: All right. Thank you. 20 It's addressing, in part, some of the 21 comments about video confirmation that are in the 22 existing rule but not in the rule that's out on the 23 front table. 24 Video confirmation occurs today in bingo 25 halls -- or in some bingo halls throughout the state 0023 1 on event tickets, and it's important to understand, 2 which I think the staff does, that the video 3 confirmation provisions that are in the rule as 4 published only apply to event tickets, which is a 5 subset of pull-tab tickets. 6 I take a little bit of exception to both 7 comments by Mr. Bresnen and Mr. Baker when they said 8 that event tickets -- or suggested that perhaps that 9 was some sort of expansion of gaming, and it's not, 10 because the definition of pull-tab bingo, which has 11 not changed in 12 or 15 years -- maybe even since it 12 was put into law in, I believe, '87 or '85 -- is -- 13 has been broad enough to encompass a variety of 14 instant products like the event ticket. And it was 15 only after the industry came together with the 16 Commissioners and the staff that the rule was revised 17 to give life to new type of products that were covered 18 by the existing definition of pull-tab. 19 So, you know, sometimes we toss out 20 phrases and we forget what the phrases mean and I want 21 to be clear that an event ticket is not an expansion 22 of gaming in Texas and has never been because of the 23 existing definition of pull-tab. It may be that the 24 rule was changed, which it was, to accommodate 25 different types of play of instant product, which the 0024 1 rule did do, but those type of instant product have 2 been in existence throughout the United States for 15 3 or so years. 4 So it's not an expansion when you're 5 merely revising a rule to reflect reality any more 6 than it would be an expansion of gaming on the Lottery 7 side when they roll out new instant scratch-off 8 product that is tied to the existing statutory 9 definition any more than it's an expansion of gaming 10 when the Lottery Commission decides to either add one 11 ball to the general Lotto drawing or subtract the 12 number of balls or adds a new Lotto-type product. 13 You're still tied to the existing statutory 14 definitions. 15 So with that caveat, we envision the 16 video confirmation system to add integrity to the 17 existing game and to, as Mr. Bresnen indicated, avoid 18 slippage, which has happened in a few halls throughout 19 the state, and we think it is tied to instantaneous 20 inventory system, that -- with the dial-in capability 21 that exists today on cardminders where staff can, if 22 they so choose, look at the actual sales of 23 cardminding products. They can actually look at the 24 point-of-sale system and then later, if they want to 25 audit it -- it's a lot easier to audit an electronic 0025 1 system than it is if you were to go -- looking back 2 over a year, year and a half period, 700-plus daily 3 cash -- paper cash reports and trying to look at a 4 pattern that may have developed, or what have you, 5 with an electronic system, electronic digital 6 inventory system and reporting of sales that occur, 7 which, again, occurs today on the cardminder 8 electronically and records the prices that are paid 9 and you can look at the inventory. That adds a level 10 of integrity and accountability, which is why the 11 Commission, I think, when they've written every 12 version of their cardminding rule, wanted to ensure 13 that type of accounting system was in place and 14 rewrote the cardminding rules several years ago to yet 15 enhance security features for sales on cardminders. 16 And so we envision the same type of applicability to a 17 cardminding system with a video confirmation language. 18 The word "system," as we have spoken 19 with staff about, was more -- was a system of not only 20 verifying winners but also verification that all of 21 your auditors wish they had when they go audit and 22 look at boxes and boxes of documents and have to chase 23 back paper cash sales reports as opposed to an 24 electronic form. 25 We will separately show the actual video 0026 1 display when we get it in Austin, Texas, that occurs 2 today in bingo halls, and I know Mr. Sanderson has 3 seen some of those. Some of them are very rudimentary 4 where the event ticket is a ball drop of O-67; then 5 play with not only a bingo game, a regular bingo game 6 but an event ticket that that O-67 winning ball is 7 displayed video on the hall monitors to a horse race 8 game where you actually see on the monitors the event 9 unfolding. 10 We haven't in the draft rule -- or the 11 Commission in the draft rule and industry did not 12 support any sort of expansion of the definition of 13 "event ticket." And it's important to know that under 14 the event ticket, as I know the Commission staff are 15 aware of it because they either licensed it, approved 16 it or audited the plan of event tickets, it is some 17 subsequent event that occurs that can include a draw 18 of balls, a spin of wheels. And I guess one of the 19 concerns that had been raised was this was some sort 20 of expansion, electronic, including some sort of 21 slot-type machine, and that's not what is anticipated 22 by the draft rule language. That was not what was 23 anticipated by the comments that I made on behalf of 24 clients and I can't imagine the Commission ever 25 approving that type of system in any event under the 0027 1 current regulatory regime. 2 In sum, the changes that we have 3 advocated for as it relates to the video component 4 would enhance the play of games, but, more 5 importantly, it would enhance the tracking of revenue 6 and inventory and the prizes to be awarded as an 7 additional safeguard over what exists today. 8 There were a number of other issues in 9 the pull-tab game. Some of them, I've heard comments 10 made, "Well, how come we're eliminating certain 11 information from the front or the back of the face or 12 reverse of the pull-tab ticket," and from my clients' 13 perspective -- and I represent manufacturers, 14 distributors, lessors and charities -- if the 15 Commission has determined that certain information 16 should be reported and presented on a pull-tab ticket, 17 give the manufacturer, the distributor, the charity, 18 the market, if you will, the decision whether it 19 should be on the front or the back. 20 I know of no industry -- and you can go 21 out and purchase any number of products where 22 government has decided that on a document, that if 23 they're going to record information, it has to be 24 presented on the front of the document or the back. 25 As long as it's there and it's understandable and a 0028 1 consumer can either get it or they can go ask someone 2 if there's some question about what is being presented 3 on the face or reverse of the pull-tab, who really 4 cares? In a day when we're trying to eliminate 5 government intervention, it seems to me that the type 6 of information that the Commission determines or the 7 staff determines is important to have, let the 8 manufacturer, let the market decide if it needs to be 9 on the front or the reverse. 10 I've been actively representing 11 charities and other licensees in Texas and I have yet 12 to ever hear of anyone saying, "Gee, the information 13 that's required on the front, why is it there and not 14 the reverse?" And I doubt that the Commission staff 15 have ever had that type of inquiry. So I think that 16 those type of changes were important to, again, let 17 the market decide where that information will reside 18 on the card -- on the pull-tab itself. 19 One of the things we will present later 20 is the -- a flare or a presentation on an event 21 ticket, and one of the things we're trying to get away 22 from, which every other industry has rapidly done 23 since the invention of the Internet and the digital 24 world that it spawned back in the early '90s, is 25 eliminating paper and paper product, and you have a 0029 1 lot of information now that is presented to consumers 2 digitally. And if the consumer so chooses, they can 3 download that information and print it off for 4 safekeeping or for whatever reason. 5 And what I'm talking about is the flare 6 itself, not the ticket. The ticket still has to be 7 presented -- printed and presented to the customer, 8 but whether the information is -- on a flare, is a 9 poster, a placard or a digital representation, it 10 seems to us, is irrelevant as long as the crucial 11 information that the rule has embodied must be 12 displayed is actually displayed, and that is a 13 provision in the definition section, Subparagraph (a) 14 new Paragraph (3). 15 We've also given flexibility -- or the 16 draft rule has given flexibility on artwork approval, 17 which is Subparagraph (b)(5), in which changes to 18 symbols would require only an artwork approval and not 19 a formal submission of the entire ticket, and the 20 accompanying delay involved in getting that 21 approval -- if the only change is to go from a 22 firecracker to a NASCAR symbol, then it shouldn't 23 require an original as though that were an original 24 symbol. 25 This change in (b)(5) would allow that 0030 1 to occur, again, giving flexibility and expedited new 2 approval process, which takes me to another comment 3 which was a comment that Commissioner Cox made in the 4 last Commission Meeting where the draft rule had been 5 submitted to the Commission with a change that 6 allowed, if the artwork had been approved, the 7 manufacturer could promptly submit it to distributors 8 for sale even though the entire ticket hadn't been 9 approved. And Commissioner Cox asked Mr. Sanderson a 10 series of questions about how long it takes, on 11 average, to get the ticket approved, and I believe 12 Mr. Sanderson's comment was three to five working 13 days. 14 We've had exceptions to that that have 15 taken months and months to get approved, and it's 16 embodied in a comment from my client, the VFW, that we 17 would support additional language which we'll submit 18 separately, Ms. Joseph, to ensure that the prompt 19 approval occurs. And we're thinking in terms of ten 20 days, two weeks, something like that, so that it's a 21 quicker process. 22 And I'm not quarreling with 23 Mr. Sanderson's observation that, on average, it's 24 been a fairly quick process, but there have been 25 situations where it's taken months and months to get 0031 1 feedback from staff or to get approval of a new 2 ticket, and we think it -- the Commission staff ought 3 to be -- should, in our world, give prompt approval, 4 or if there's a concern, give prompt feedback on what 5 that concern is so that the manufacturer could make a 6 decision to either revise it, negotiate further or 7 perhaps pull it down and submit another product. 8 And in that regard, assuming we can get 9 prompt approval language, then we have no objection to 10 the new language in Subparagraph (c) on disapproval of 11 pull-tab bingo tickets and the new requirement of both 12 the manufacturer and distributor to provide certain 13 information to the Commission staff. 14 There's also an important issue in the 15 existing rule which we worked with staff on having to 16 do with what I call a "peek'em" issue under 17 Subparagraph (c)(12) in the design of the tickets and 18 the type of border, if you will, that has to be 19 included in the ticket to prohibit -- I said (c). I 20 meant (d), the manufacturing requirements, 21 Subparagraph (12), new language in Subparagraph (D) 22 and (E), (F) and (G) and (H) -- or (G), and that would 23 enhance integrity of the game to prohibit an 24 individual from peeking open without destroying the 25 perforation to determine if there's a winner or loser, 0032 1 and we support that language. 2 That is consistent with an industry 3 standard that -- national industry standard; so we 4 like that and we're in -- the Commission staff in the 5 past has had an informal standard, if you will -- I'm 6 not suggesting it was a rule because it wasn't 7 published, but there was a testing standard. And so 8 what we've tried to do in this language is incorporate 9 the actual testing standard into the rule so a 10 manufacturer knows, going in, the type of border it 11 has to have, which we think will have the benefit of 12 attracting more product into the Texas market once the 13 manufacturers understand what that -- in plain black 14 and white what that standard is. 15 There's a reason in the bingo industry 16 why manufacturers bring forward new product, and it's 17 the same reason that the Lottery does on the Lottery 18 scratch-off side and it's the same reason that General 19 Motors, Toyota or Ford take -- bring new product to 20 the market, because that's what the customers want to 21 see, and so to the extent that we can identify what 22 the Commission standards are, I believe it will bring 23 more manufacturers to the market which will enhance 24 the type of inventory that's available for sale to 25 the -- by the charities to the public and will, in 0033 1 effect, enhance the charities' financial position by 2 having more product available for sale, product that 3 the customers want to buy and can innovate that type 4 of product. 5 Finally, the one issue I want to address 6 is an issue that was -- what I call the "Larry 7 issue" -- Larry Whittington who is a member of the 8 Dealer Advisory Committee and has been adamant about 9 trying to revise the existing statute to reflect what 10 happens in a unit situation -- that's found in 11 Subparagraph (e), sales and redemption, new 12 Subparagraphs (3) and (4) -- that allow an 13 organization in a unit under Subparagraph (3) to sell 14 or redeem pull-tab tickets from a deal under the 15 circumstances identified under Subparagraph (3) or in 16 Subparagraph (4) for a charity that conducts bingo on 17 consecutive occasions within the same 24 -- within one 18 24-hour period. 19 That's crucial to allow the 20 uninterrupted sale of those pull-tab products. It has 21 caused a lot of consternation in the industry and in 22 the public, because, occasionally, they'll open up a 23 deal and the time session for that particular session 24 will end and the charity desires to continue the sale 25 into the next adjacent session, and, arguably, under 0034 1 the existing rule, that was not allowed. These two 2 changes for those two type of instances will allow 3 that to continue. It makes the customers happy. And 4 if the customers are happy, they stay there and buy 5 the product, which enhances sales to the charity and 6 enhances their bottom line in the charity 7 distributions. 8 There's another important change under 9 Subparagraph (g), the recordkeeping that's required by 10 charities, and it's a new Subparagraph (4). 11 Currently, under the existing rule, winning pull-tab 12 tickets of $5 or more with a particular bingo serial 13 game have to be retained for a -- up to a four-year 14 period. This would change that to a $25 increment as 15 opposed to a $5 increment. We're -- and having 16 discussed it with staff at length, there was no 17 integrity issue in this case, but it certainly 18 eliminates the type of recordkeeping that a charity 19 has to maintain after the game is closed long after 20 the customers have moved on to different issues. 21 We'll also, separately, file additional 22 comments on the jackpot pull-tab game. It occurs to 23 us that we should provide some legislative history on 24 the type of jackpot pull-tab game we're talking about. 25 I'll be happy to answer any questions 0035 1 and I reserve the right to file additional comments, 2 many of which will be in writing. 3 We're also exploring the possibility of 4 a video demonstration of the video display, and, 5 Ms. Joseph, separately, I'll talk to you about how we 6 do that and make it available for the record, et 7 cetera. 8 MS. JOSEPH: All right. Do you have any 9 questions for Mr. Fenoglio, Mr. Sanderson? 10 MR. SANDERSON: No. The only question I 11 have, Steve, is you mentioned that you talked to your 12 clients about rescheduling of the hearing. 13 MR. FENOGLIO: Yes. 14 MR. SANDERSON: Are you aware if any of 15 them are planning to come tomorrow? Just for 16 scheduling -- for our own scheduling purposes. 17 MR. FENOGLIO: No one has contacted me 18 about coming tomorrow. So they were either going to 19 show up today or they would wait for another day. 20 Quite a few plan to come from the Dallas area, but as 21 you probably know, yesterday, we had had -- the worst 22 ice was, I guess, Tuesday for us, maybe Wednesday 23 morning, and it was doubly bad in Dallas. And as a 24 matter of fact, I have a daughter who goes to the 25 University of North Texas and there's -- classes still 0036 1 remain closed today. So it was doubly bad in Dallas; 2 so my advice to them was: Unless you want to come 3 down -- Friday is not a particularly good day for 4 people to come in on and I think our inclination is 5 for -- from our side of the table, if you will, is 6 either Tuesday, the 30th, or Wednesday, the 31st. 7 Ms. Joseph, I will -- I promised to 8 reschedule and I will send her -- or call her on that 9 and I will. After having -- looking at some e-mails, 10 it looks like one of those two dates is the best day 11 for the industry. We understand the Commission 12 Meeting may occur on that Monday, the 29th, and that 13 was one of the days I had initially suggested to staff 14 as an alternative date, but if that's going to be a 15 Commission date, that's not a good day to have a 16 comment -- 17 MS. JOSEPH: Fine. And do you, by any 18 chance, have another copy of what we have received as 19 your Exhibit 1 that we might make available to the 20 court reporter? 21 MR. FENOGLIO: I do. And, again, I 22 will -- this is my second and only copy I brought with 23 me, but I will also follow up with an e-mail of this 24 in a TIFF or PDF format. 25 MS. JOSEPH: All right. Thank you. 0037 1 MR. FENOGLIO: Thanks. 2 MS. JOSEPH: Appreciate your comments 3 today. 4 Suzanne Taylor. 5 MS. TAYLOR: Good afternoon. My name is 6 Suzanne Taylor. I'm primary operator for Lost Pet 7 Hotline, Dobie Haven, Camp Fire USA and Peewee's Pet 8 Adoption World & Sanctuary, Inc., all located in 9 Corpus Christi. 10 I came today to tell you that we are in 11 support of the general licensing provisions, 402.400. 12 We also support the bond, and that's 402.603, which is 13 something that I had discussed at one of the previous 14 meetings because several of the organizations had a 15 hard time getting into bingo because of the bond 16 requirements. They're small and to come up with 17 $7,500 or more was a huge impediment to getting into 18 bingo; so we definitely support the bond. 19 Progressive bingo, 402.305, overall, we 20 do support this rule change. There are a couple of 21 exceptions, however. Page 3, under definitions, it's 22 Number (2) at the bottom of the page, mentions that 23 all disposable cards, paper sheets and electronic 24 equivalent must be sold at the same price. We have a 25 problem with that. We are a half-pay hall. We have 0038 1 full and half-pay on every game that we sell in the 2 hall. So we -- 3 MS. JOSEPH: Would you repeat which 4 provision that was for me? 5 MS. TAYLOR: It's at the bottom of Page 6 3. It's under the definitions (a) -- actually, I 7 guess it's down to (c)(2). It's Lines 23 and 24 on 8 the -- 9 MS. JOSEPH: All right. Thank you. I'm 10 with you. 11 MS. TAYLOR: We would like to see 12 something in there that would allow us to continue to 13 sell full- and half-pay cards. 14 Page 4, Number (4) and Number (3). 15 Number (3) says that they shall not be sold as part of 16 an UPS pad. I don't know if there's a reasoning that 17 this game could not be part of your set of a series of 18 games. There are some halls that don't sell any 19 out-of-set games. So I don't know if there was a 20 reason for that, but we, at this point, are not 21 supporting that they have to be sold separately. 22 Item Number (4) on that same page, it 23 says it must be sold prior to the drawing of the first 24 ball. We'd love to see it say something more like 25 prior to the drawing of the fifth ball or the tenth 0039 1 ball. If you've ever been at a bingo hall, it's very 2 hard to get customers to all get that paper; so this 3 would delay the beginning of the game to play the 4 game, because everybody always wants that last page. 5 So you would be up just telling people, "No. You 6 can't have it. It's closed, and, no, you can't play 7 it." And as long as it was done within a -- you know, 8 a pretty -- a brief period of those first numbers, 9 we'd like to see there be a number of balls and not 10 before the very first ball of the game. 11 And I agree with Stephen Fenoglio, 12 there's an awful lot of recordkeeping. One of the 13 items that I've seen on here is that they would 14 require the serial number. This is on Page 6 -- let 15 me go back to Line 2. It's Number (1) and is Line 2. 16 It says a jackpot paying prize may be paid by cash or 17 check. I'd like to see the word "merchandise" added 18 in there. Perhaps the big screen TV is the prize. So 19 some halls don't pay all in cash and prizes and a lot 20 of the smaller halls -- the VFW halls pay out in 21 merchandise; so I'd like to see the word "merchandise" 22 added to that particular line. 23 And besides that, I do think the 24 recordkeeping is a lot. I did miss one part in here. 25 There's something that says that you cannot sell the 0040 1 same page or the same number, and, you know, we hate 2 to sell a card -- a duplicate card, but now and then, 3 it happens. I would sure hate to see that it's 4 against the law if we have a mistake happen and a 5 duplicate card gets out on the floor. With loose 6 paper, it's a definite possibility. No hall wants a 7 duplicate serial number out there, but it happens. So 8 I hate to see that that's actually against the hall. 9 That's actually on Page 3, Line 20 through 22. It 10 says it must not duplicate any other disposable bingo 11 card or paper being used at the same bingo location. 12 It happens with -- especially with loose paper. 13 MS. JOSEPH: All right. I believe 14 that's in Paragraph (c)(1). 15 MS. TAYLOR: But, overall, we support 16 the progressive bingo. We'd just like to see a couple 17 of tweaks in it. 18 And onto the pull-tab bingo, Rule 19 402.300. It seems like the biggest impediment today 20 has been the fact that we're talking about some video 21 verification of pull-tabs, and what's so confusing to 22 me is that we're already doing that in the halls. The 23 Stingers and Planet Stingers both have video 24 verification numbers on there, and they are video 25 verified. So that's something that has been already 0041 1 approved by the Lottery Commission, and, to me, all 2 they're doing is putting in the rules here the fact 3 that you can do it, but these tabs -- I'll bring you 4 these flyers that show the verification number. We're 5 already doing that; so it's already been approved. 6 This is the -- this is from the Stinger 7 and the Planet Stinger and you'll see that on the tab 8 there's a video verification number. And you verify 9 this on the monitor. You read the number and you 10 electronically verify it, the same way that we do the 11 bingo cards through the verification number. 12 And I believe they sold -- that Stingers 13 are a huge seller. The halls go through boxes and 14 boxes and boxes of them; so we've already -- the 15 Lottery Commission has already approved a tab with 16 electronic verification. 17 MS. JOSEPH: I'm marking the pages that 18 you handed me Taylor Exhibits 1 and 2, and those will 19 be made part of the record. 20 (Taylor Exhibits 1 and 2 marked) 21 MS. TAYLOR: We -- the pull-tab rule, I 22 have to agree with everything I've already heard. 23 There's one item on here -- this is going to be on 24 Page 11. It's Line 7. It's under (c)(1) and it talks 25 about that -- when the Commission gives notice to the 0042 1 manufacturer, confirmation that the distributor has 2 notified the licensed organization that the pull-tab 3 has been disapproved and sale and use of the 4 disapproved tab -- ticket -- excuse me -- must cease 5 immediately, I'd like to see that the distributor must 6 take those tabs back and give the charities a credit 7 for those, that the charities are not stuck with tabs 8 that are not allowed to be sold. 9 On Page 15, this is (e)(3), we love it. 10 We love the fact that -- it's down on page -- at the 11 bottom of Page 15. We're fully in support of the fact 12 that the units can continue to sell the tabs between 13 all sessions and not have the discontinued sales. 14 What currently happens is: You get 15 closer to the end of a session, and the charities, in 16 order not to pull the tabs over into the next session, 17 have to stop selling; so you have a dead period there. 18 And a lot of those customers are getting up and 19 leaving the hall then. There's nothing to stay. 20 You've got two good things happening if 21 you continue to sell the tabs. One, they might go 22 ahead and stay and play for a second session, because 23 they have a vested interest in a tab that they've 24 purchased that they want to wait to see played. And, 25 number two, you don't lose that selling time that 0043 1 we're currently losing in the halls. 2 Number (4) at the top of Page 16 under 3 that same section is also awesome, because, once 4 again, you can redeem that pull-tab during any of 5 those sessions that it sold for the units or the 6 organizations that are playing back-to-back sessions. 7 Down on Line 18 -- it's under Item 8 Number (9), it says that the cards must be on a form 9 prescribed by the Commission. Because most halls 10 currently have a form that they use that they're used 11 to that they know how to use and because they're in 12 the hall doing this, I would like to see it say "by 13 the Commission or on a form that has that same 14 information" so that they don't have to use a form 15 that the Lottery Commission has given them, as long as 16 their own form contains the required information. 17 On Page 17 -- this is (g)(5). It's on 18 Line No. 21 at the bottom of Page 17. "If a deal is 19 removed from play and marked for destruction then all 20 winning" -- "winning" has been marked out -- "and 21 unsold pull-tabs must be turned over to the 22 Commission." Honestly, I believe you need to leave 23 the word "winning" in there. If you've got a deal, 24 and because this is event tickets or instant tickets, 25 I think that you have the problem with 0044 1 organizations -- not organizations -- an individual 2 possibly saying that a tab has been paid out that 3 hasn't been paid out. And as long as the winners are 4 all thrown in the garbage, nobody knows the difference 5 unless the Lottery Commission comes in and sits and 6 opens up the rest of the tabs. 7 I just think it opens the road for 8 people to -- a dishonest person, perhaps, to say tabs 9 have been paid that haven't been paid. I think 10 keeping the winning pull-tabs is proof that they have 11 been paid until the whole set has been picked up by 12 the Lottery is really a good idea; so I would not mark 13 out the word, just because I -- unfortunately, I've 14 seen that happen in a hall before. So I understand 15 the reason for leaving the word "winning" in there. 16 Besides that, that's it. Love the rule. 17 Attendance at bingo has continued to decline. We 18 truly, truly need to move ahead with some new and 19 innovative things. And one place that the -- I'm 20 surprised there's so much worry about the video 21 confirmation since it's something that we've been 22 doing for several years now on several different tabs. 23 I believe we also use Zapper, who's another tab also. 24 So there's several tabs already approved that we do 25 video confirmation on monitors. 0045 1 So that's it. If you have any 2 questions -- 3 MS. JOSEPH: All right. Do you have any 4 questions, Mr. Sanderson? 5 MR. SANDERSON: I do not. 6 MS. JOSEPH: Thank you very much. 7 MS. TAYLOR: Thank you. 8 MS. JOSEPH: All right. I don't have 9 any other affirmation forms at this time. I do see 10 Ms. Thompson bringing one forward. 11 If there's anyone else who would like to 12 speak today, if you would please fill out an 13 affirmation form and bring it forward. 14 Call on Ms. Jane Thompson. 15 MS. THOMPSON: Jane Thompson with 16 Thompson Allstate Bingo Supply. 17 And, actually, I'm not -- I don't want 18 to take any time in repeating everything that's been 19 said. At the risk of sounding like a copy-cat, I do 20 want to say I -- if I could, I would repeat every word 21 that Steve Bresnen gave as testimony. I support -- I 22 don't think I could say my feelings for support of 23 Rule 300 any better than he did, and I just want to go 24 on record as saying I strongly support the rule for 25 the pull-tab rule and I'm not going to comment any 0046 1 further because it's just repetitious. So mark me 2 down as very much in support of it. 3 MS. JOSEPH: All right. Thank you, 4 Ms. Thompson. 5 Is there anyone else that would like to 6 offer comments? 7 (No verbal response) 8 MS. JOSEPH: All right. Then, at this 9 time, we will continue but not close this hearing -- 10 we'll continue this hearing until tomorrow until 11 9:00 a.m. to give anyone an opportunity to appear that 12 might not have been able to make it today but was -- 13 it would be convenient for them to be here tomorrow. 14 At the -- tomorrow, after opening the 15 hearing and hearing any comments that might be 16 offered, we will close that hearing and we will 17 subsequently be posting notice in the Texas Register 18 of any -- or not of any but of the hearing date for 19 another hearing on this matter so that those who could 20 not be here today or tomorrow are able to offer us 21 their comments. 22 We do appreciate everyone who put out 23 the effort to be here today. We know it's been a 24 hectic week for everybody and do appreciate you being 25 here. 0047 1 If there's nothing further, we will 2 continue this hearing until tomorrow at 9:00 a.m. in 3 this room. Thank you. 4 We did recess today, I will add this, at 5 12:24 a.m -- 6 MR. SANDERSON: P.m. 7 MS. JOSEPH: -- p.m. Excuse me. 8 (Proceedings recessed at 12:24 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25