Ken Rodriguez: Lottery losing more than sales — it's losing credibility

Web Posted: 07/01/2005 12:00 AM CDT
San Antonio Express-News

Comments in blue italics were made by Dawn Nettles - The Lotto Report
These comments were NOT included in Ken Rodriguez' editorial.

The Texas Lottery is a rock under a chisel. Piece by piece, the game is losing the one thing it cannot afford to lose — credibility.

From phony jackpots to Wednesday's admission of public deception, trust is crumbling in a game that generates $3.5 billion a year.

The hammer of scandal has fallen hard on the Texas Lottery Commission, and especially hard on its executive director, Reagan Greer.

With Greer's consent, the commission has advertised four jackpots it couldn't pay if somebody had won.

Honest mistake?

Four times?

No wonder they're taking bets on whether he'll last the summer.

And now comes a warning from a former security supervisor at the TLC who investigated lottery fraud for years.

"The integrity and security of the lottery has been compromised," the former lottery commission investigator says. "They've reduced the security force from 32 people to five. The watchdog is not there anymore.

"The supervision of the production of the lottery ticket is not there. The investigative capability of retailers that are scamming is not there. Five people cannot do the work of 32."

Commission spokesman Bobby Heith confirmed a reduction in the commission's security force last year. But he said he didn't know how many employees were released.

Heith said the security division was reorganized to save money — almost $300,000 in salaries — and to make it more efficient. (Someone should ask the TLC how much they spent remodeling the executive offices - all in mahogany - while putting Texans out of work at the same time and claiming they were saving money for the state.)

He said lottery commission leaders don't believe the reorganization compromised the commission's integrity and security. (Someone should review the cost benefit analysis associated with cutting security and bringing in outside sources to TRY to do the work. They'll find that the TLC spent more for outside vendors. Taxpayer money was wasted and employees were let go. How very sad.)

The former TLC supervisor for security disagrees. He said, for example, there aren't enough investigators to do routine background checks on retailers and prospective commission employees.

With such a small security staff, the former investigator says, the commission is unable to fully screen those with felony convictions.

The security warning comes in the wake of damaging disclosures out of Austin:

Texas Lotto players have been duped. Not once. Not twice. But four times since October 2004.

The TLC says it advertised four jackpots that were inflated by as much as $1.8 million.

Commission chairman Thomas Clowe says lottery players were deceived.

Clowe blames the deception on Greer, who approved the inflated jackpots. Heith said Greer is on vacation until next Wednesday and unavailable for comment.

The commission employee who warned that sluggish ticket sales would not support advertised jackpots was fired.

The commission says the dismissal of chief financial officer Lee Deviney was unrelated to negative media coverage.

Baloney. Deviney was fired because Grief, Morris, Kiplin, Greer and Fernandez "thought" he leaked info to the press and because he was not a "team player." Deviney should be rehired and Gary Grief, Diane Morris and Kim Kiplin should all be fired "at will" just like they've done to so many other employees. There are certainly valid reasons to fire them.

As it's been revealed now - Deviney, Triloni and I tried to warn the Commission of cash shortages to fund the amount they were advertising. As it turns out, the executive staff ignored us and continued to deceive the players all for the sake of trying to make more money for the state.

And for the record, I NEVER spoke to Lee Diviney until AFTER he was fired. Proof can be found via our phone bills and our computers. Words cannot describe how I felt when I learned he had been fired after I filed the complaint with the AG - I felt that someone would take the fall but I had hoped it would have been the people who were "really" responsible for deceiving the People of Texas.

Deviney told Express-News reporter Lisa Sandberg he was released 11 days after warning supervisors of a jackpot shortfall — and seven months after receiving a positive evaluation and a 4 percent raise.

In March 2004, the lottery's online product manager warned Greer and others at the commission of shortfalls.

No action was taken. In fact, the public did not learn of jackpot shortfalls until lottery watchdog Dawn Nettles filed a complaint with the Texas Attorney General's Office.

These and other unsettling details emerged during a hearing before the House Licensing and Administrative Procedures Committee.

The lottery is in trouble.

Sales for Texas Lotto are down by more than 25 percent from last year. The slump began long before disclosures of deception.

If players believe the game is dishonest, ticket sales will plummet even more.

Commissioners can apologize. They can make changes. They can promise honest jackpots.

But will that help? Every couple of weeks, another hammer falls.

The rock on which the lottery is built — the rock of credibility — is splitting apart.

--------------------------------------------------------------------------------
To contact Ken Rodriguez, call (210) 250-3369 or e-mail krodriguez@express-news.net. His column appears on Sundays, Wednesdays and Fridays.

Lottery chief gets blame for inflated jackpots
House committee grills executive director, who could face punishment

By KAREN BROOKS / The Dallas Morning News
Wednesday, June 29, 2005

Comments in blue italics were made by Dawn Nettles - The Lotto Report

AUSTIN – The Texas Lottery Commission chairman laid blame for inflated lottery jackpots squarely on the agency's chief Wednesday, hinting to state lawmakers that executive director Reagan Greer could be punished.

Mr. Clowe answered: "The person who made the decision [to sign off on the estimates] ... Reagan Greer."

"The commissioners think this was deception and that it was wrong," Mr. Clowe testified. "If those were my employees in the private sector ... I would take the appropriate action and consider it a wrong act."

Mr. Clowe stopped short of saying that Mr. Greer should lose his job over the issue. However, the grilling Mr. Greer got at the House hearing and at a commission meeting last Friday indicate he could be next in a long line of lottery directors to leave after a scandal.

The commission is scheduled to meet on the issue July 11. It's the first opportunity to take action since the scandal broke.

Lawmakers demanded more openness, better communication, tighter oversight and more accountability to lottery players after the growing public scandal over estimates – two in June – that exceeded what the agency could have paid the winners. There were no winners in any of the four drawings, saving the lottery from having to explain itself sooner.

Lawmakers suggested switching to guaranteed jackpots – winners now get a set percentage of revenue from drawings – or better educating the public that the advertised jackpots are only estimates. Lawmakers also questioned the firing of financial director Lee Deviney, who oversaw employees who made the estimates, suggesting that he was terminated because he was trying to point out the problem.

Lotto officials have said Mr. Deviney's termination was a matter of poor job performance and had nothing to do with the false estimates, although there's no documentation of past grievances.

"If there is one agency that needs oversight, that's the one," said Rep. Corbin Van Arsdale, R-Tomball, who is not a committee member but sat in on the hearing and questioned officials. "I think the mismanagement in there is far more substantive, far more pervasive than any of the news stories have led me to believe."

Mr. Greer, who has the authority to set jackpots and the final word on what the publicized estimates will be for each drawing, has taken most of the criticism. His subordinates have said they inflated the estimates to maintain sales.

"My perspective and intent was not from a deceptive scenario," he testified Wednesday. "It was a mistake I made based on staff recommendations that I had felt confident with over a period of time. Looking back, I should have asked harder questions and looked into it, probably in a micro way."

Mr. Greer said the agency has implemented a checks-and-balances system on the estimates and might start holding pat on jackpots through multiple drawings, among other measures.

"We're going to fix this situation, and we're not going to let it happen again," he said.

The false estimates came to light after Garland resident Dawn Nettles, a self-appointed lottery watchdog, filed a false-advertising complaint with the Texas attorney general and the Travis County district attorney's office on June 6. Later that week, the commission decided for the first time in its 13-year existence not to increase the jackpot between drawings when there was no winner so sales could catch up to the advertised $8 million estimate.

Ms. Nettles, who has monitored the lottery since its inception, testified Wednesday that the people of Texas deserve fair games and that the lottery commission has routinely deceived and cheated players. Committee Chairman Kino Flores, D-Mission, invited her to meet with him and Mr. Greer and "spend an entire day" going over her ideas for ways to fix the lottery.

"I believe in what they're doing, and I don't think they're out there to cheat anybody," Mr. Flores said.

Ms. Nettles expressed frustration with the hearing later, saying commission officials were covering up their knowledge of problems.(My frustrations are explained in the next editorial.)

"Great, the TLC's been slapped. But you tell me. What's actually going to come from it?" she said. "They're not going to misrepresent the numbers – until the next time?"

YES, I Was Frustrated ... Here's What I Saw ...
Here's What I Heard ... Here's What I Know
Editorial by Dawn Nettles - The Lotto Report

About Gary Grief
I watched and heard Gary Grief explain to the Legislature that it was not "his job" to intervene in the jackpot estimation process. Not his job?

Let's see. He's the number 2 man, he "really" runs the commission, he received Diviney's email on Friday night but he failed to notify his boss of the shortfall because he said it wasn't his place?

Gary Grief had 27 & 1/2 hours to prevent the TLC from announcing a roll to $8 million if Saturday's draw produced no winner. Did he do it? NO.

Why not - he's the number 2 man.

He said it wasn't his job. I'd fire any employee who used this excuse to me. Immediately if not faster.

Gary headed the meeting the following Monday while Greer sat back and listened about the jackpot shortage. But Grief told our legislators it wasn't his job?

Who trained Reagan Greer? Gary Grief & Kim Kiplin did. Reagan Greer has two years lottery experience - Grief and Kiplin have many years experience - I think both have been there since start-up.

Grief preaches about being a "team player." Many people have been fired because they weren't "team players." What kind of "team player" was Grief when he allowed the Commission to deceive the players and didn't bother to alert his boss?

Grief had plenty of time - 27 & 1/2 hours before the $8 million roll amount was to be announced.

Grief is 100% responsible for giving us the 5/44 game that has failed miserably.

The population of Texas is about 22 million and the odds of our Lotto game is 47.7 million to one. California has a population of 35 million and their Lotto game - that is also failing due to the odds increase - is 41 million to one.

Grief has given the People of Texas a Lotto game that should be considered a scam and he knew what he was doing when he did it. If the TLC had to adhere to consumer laws, and IF this was put before the AG - I firmly believe the AG would have no choice but to rule the game a scam.

Did you know that if you compare the first 226 draws under the 5/44 matrix to the last 226 draws under the old 6/54 matrix, sales are down by <$372.7> million.

Gary Grief is clearly responsible for a huge loss in revenues for the state. Not to mention damages done to unsuspecting players who have no conception of their real chances of winning as they've thrown their money away.

Grief is the one who bought new balls and drawing machines before the 5/44 rule was proposed and/or adopted and before comment was considered as required by law. His carefully worded comment during the House Investigating Hearing about the purchase was that "Commissioner Clowe had no knowledge that he had purchased the balls and machines." What about the other Commissioners? Did they know?

Grief is the one who upped the starting jackpot to $4 million after Linda Cloud left knowing it could be a liability for the state. Seems to me that the state doesn't need any more expenses - times are and were bad. The Lottery was suppose to cut back expenses but that didn't mean to cut the income too.

Gary Grief is the one who hurriedly bought the SST's before the end of the TLC's fiscal year. He even knew that what he was buying was out dated. Has he justified the costs of 12 million? Did the SST's pay for themselves? NO. Is he planning to buy more before the end of August? YES.

Gary Grief knows the people oppose any kind of computerized draws. There's a national petition out there but has that stopped Gary Grief from plotting and planning to give us computerized draws anyway? NO.

The TLC takes lots of complaints but if you requested a copy of them you'd receive very few. You know WHY? Cause if the complaint is just called in it doesn't count. They have TWO lists - one called "contacts" and one called "complaints."

Smart move when you have plenty to hide. Huh?

Gary Grief is the one who did the re-organization. He got rid of most of security and he did away with the Marketing division. He named certain employees as directors and managers after helping them write their resumes so they'd qualify for the new positions.

Plus Grief got rid of the winners liaison - I suppose he felt like the salary was wasted since his game changes have created so few winners now-a-days. But if you read and hear the TLC's advertising about winners, you'd think there were hundreds of thousands of "winners."

The TLC had to close many claim centers because they couldn't justify their existence. There weren't many people needing to claim prizes. Then after the claim centers were closed and more people found themselves out of work, the TLC begins offering a prize of $600 [Megaplier/Mega Millions] where people are forced to drive long distances to collect their prize money and they have to pay taxes on it as well. Did Grief & Greer consider this tidbit as they set the prize amount to $600? NO. Why didn't they make the prize $599 to make things easier and more profitable for the players?

Gary Grief allowed retailers to sell the Set For Life tickets for 6 weeks even though he knew there were validations problems. All for the almighty dollar. No telling how many players lost on that deal. Why weren't those tickets called back immediately?

Why hasn't Gary Grief evaluated the twice daily draws for Pick3? Are sales what they projected? Is the cost to the state for conducting two draws per day being supported? Was the state better off having one drawing or two drawings? I think the bottom line was better having one draw per day. Seems like one would run a lottery with cost efficiency in mind.

Employees, both current and ex, describe Gary Grief as being extremely smart and smooth as he cuts their throats.

I'll just bet that we'll be adding Reagan Greer to that list of employee comments in the coming weeks.

About Diane Morris
I heard Diane Morris tell our legislators that firing employees does not have to be documented and employees do not need a warning before being terminated. Fortunately our legislators did not appreciate her comments nor did I.

Employees have performance reviews done on them. It has amazed me at how many fired employees have had excellent reviews.

Diane Morris has always preached that "everything" needs to be documented. Apparently she's had a change of heart.

Diane Morris is the Human Resource Director - she is a lawyer and worked with Kim Kiplin in the legal division prior to becoming the HR Director. She obtained her new position without the Commission going through the normal processes. Meaning there was no posting for the position and no other employees had the opportunity to apply for the job.

I wonder if the TLC calls itself an "Equal Opportunity Employer?"

Why does Diane Morris offer employees the opportunity to resign after they've been fired? Isn't this deceiving to future employers who may want to inquire about a person's work history? Shouldn't prospective employers know the truth about someone they are considering hiring? If that person is "really" bad news, the prospective employer should be able to find out before he hires them.

She's a lawyer - she knows employees can't collect unemployment if they resign. So she encourages them to resign by telling the fired employee that "it won't look so bad on your work record if you'll just go on and resign." How generous of her.

Why has Diane Morris not written a grievance policy for TLC employees? Why wasn't there one already in place?

Why did Diane Morris refuse to investigate the activities of Chelsa McCollough as requested in May 2005?

Why is an employee still employed after divulging confidential medical information regarding other employees? This is reason for termination - but the guilty person still works there.

Diane Morris is the one who showed me the loop-hole in the law regarding considering public comment. Back in June 2000, I asked Diane why wasn't all opposed comment posted in the Texas Register for those who opposed adding the 4 balls to the game. She explained that if the comment didn't come in from an organization or on a company letterhead, then it didn't have to be posted and considered. They listed 4000 comments for the rule change and about 350 comments opposing the rule. But they had thousands opposing the rule.

Incidentially, the 4000 comments listed in favor came in by way of a "questionable" survey and originally were not "stamped" as officially received by the Commission. A real no-no.

About Kim Kiplin
Kim Kiplin is the General Counsel. She knew on Monday night that the TLC was deceptively advertising a jackpot amount they could not fund. Apparently she did not advise the Commission to cease and desist the deceptive advertising immediately. This could have been done - all they had to do was send out a press release and electronically change the billboards.

Kim Kiplin was responsible for false advertising on the Cash 5 game that Professor Gerald Busald and his class caught some years back.

Apparently Kim Kiplin doesn't believe in the laws governing truth in advertising.

Kim Kiplin was the Acting Executive Director when the first Lotto Texas winner was cheated out of his rightful winnings. Kim Kiplin didn't comply with the Lotto Texas rule that she wrote herself.

Kim Kiplin asked an internal auditor to change her final report.

Kim Kiplin is the one who tried to bully individuals out of their domain names.

Kim Kiplin bullied Rob Kohler [an ex-employee] but Kohler outsmarted her. How much did that cost the state?

Kim Kiplin misled the Commissioners regarding adding new language to a rule. She told them the phrase "in accordance with Commission procedures" was in a rule when it wasn't.

I've heard that the Texas Lottery Commission has the largest legal staff of all lotteries in the US. Why is that?

Am I mad, YES, I am.
I don't believe that the People of Texas should be treated the way we've been treated by our "gambling operation." And I certainly don't believe in treating employees the way the executive staff treats current employees.

The employee turnover is entirely too high and tax payer money is being wasted on training new employees.

The TLC has one policy that I really don't like and that is to "deny everything even if we're guilty." Originally they denied deceptive advertising then made excuses for it. They actually said that sales came in "lower than expected" but that was not true either. Estimated sales for the June 8 drawing came in higher than the TLC originally estimated. They also said that if there had been a winner they would have taken money from reserve to fund. That would not have been in compliance with the rule.

Oh, I forgot, what am I saying? They don't comply with the written rule anyway. They write internal policies at will when they want to change something in the rule - this was their excuse when they denied cheating Lotto Texas winners. By the way, the written rule supercedes any internal policy.

It's very hard to get the truth out of them and it's very hard to get them to own up to wrong-doings as evidenced by the VLT legislation, cheating Lotto Texas winners, considering comment & their deceptive advertising practices.

About the Commissioners
The Commissioners are smart men. But they are kept in the dark because employees are afraid to tell them the things they need to know.

The TLC spends hundreds of thousands of dollars for studies but results are skewed. The Commissioners never know any better. At least I assume they don't know.

The Commissioners are not players - they have no idea what it's like to play a game hoping to win something "worth while." The cards are stacked against players in many ways and the majority of the prizes are nothing more than pocket change. This is why we've quit playing the games.

Maybe the AG should define "winning" - the TLC likes to quote the number of "winners" in their advertising. It's deceptive to say the least.

The Commissioners are NOT paid and they do not work there. They only know what they are told and they are not told much.

It is time for all current employees and all ex-employees to get on the phone and educate the Commissioners. I think they'd be willing to listen to you NOW and confidentially as I do.

The Commissioners needs to clean house and start all over. The concentration should be to offer fun games of chance with fair odds [6/52 would be justifiable], fair rules, truth in advertising and no more heavy concentration on how to "make more money for the state" by giving the people unfair games of chance and computerized draws to achieve that goal.

Only then would the state see an increase of muchly needed revenues.