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The Commissioners Meeting
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The Transcript MAY 30, 2001 .... CHAIRMAN CLOWE: We're ready to move to Item No. 11, which is the consideration of rules. And Kim, I believe you're going to take us through this. MS. KIPLIN: Yes. Commissioners, you should have received, either by e-mail or in delivery -- I think, Commissioner Criner, for you, it was a hand delivery -- a draft rule making. If you did not, please let me know and I'll be glad to provide it to you right now. (Tenders documents.) And that is the purpose of the rule making that is before you today. It is to make very, very clear that if the Commission does vote eventually to approve to adopt these two rule makings, that the Commission will be paying the advertised jackpot. And that amount is the amount that the Commission authorizes its vendors to publicize. And there is an additional definition of advertised jackpot in this rule making that did not exist and does not exist today in the Subchapter D rule making. Let's make it very clear. Right now, the Texas Two Step rule, the way it is currently written and was adopted by the Commission prior to the rule making at the April meeting, does indicate that the Commission is going to pay the advertised jackpot amount. However, in the light of receiving comment, the staff has recommended to come before you today to propose the amendments to make very, very clear and to respond to a comment that there is potential conflicting language. At this point, the staff doesn't believe that there is the conflicting language in Texas Two Step, but we are responding to any sort of perception, perceived potential conflict in the language. And that's the purpose of this rule making today. It also carries forward the other reasons why we proposed it as part of the Subchapter D rule making. So, having said that, the staff does request and recommend that you vote today for two things: one, to withdraw from the preceding rule making these two rules, Lotto Texas and Texas Two Step -- we're going to need to withdraw those from that package to be able to propose these; and secondly, the staff recommends and requests that you vote today to propose this rule making for the required public comment period and publish it in the Texas Register to begin that public comment period. I'll be glad to answer any questions that you have on this rule making or the other rule making, to the extent that it relates to the rule making that's before you today. CHAIRMAN CLOWE: Questions? COMMISSIONER CRINER: This is -- excuse me. This is to say -- we had a discussion one day about the fact that when we had the $85 million deal, the prize kept rising because there were so many tickets sold. We are saying that if we're still going to pay $80 million, that's what we're going to pay -- MS. CLOUD: Right. COMMISSIONER CRINER: -- whether it goes up or down. MS. CLOUD: Right. COMMISSIONER CRINER: The number that we forecast is the number -- MS. CLOUD: Right. Let me give you another example of that. A $4 million jackpot, which is our minimum jackpot, we don't have the sales to pay a $4 million jackpot. So in order to supplement the jackpot at the lower level, being able to roll over an excessive amount that's advertised would be beneficial to the lottery, versus reducing the minimum to a $2 million jackpot, which is about where we would be. MS. KIPLIN: I will say, all of the comment that was received as part of the other rule making was opposed to the Commission paying the advertised jackpot and wants the Commission to continue to pay the jackpot based on the contributions to the prize categories; in other words, what is driven by sales. So I want to make sure that you are informed of the comment that has been received. This rule making does not concur with that comment. In other words, this rule making is to make clear it is the advertised jackpot that the Commission will pay. (In the last meeting, you said you "invite comment" - but you really don't. The TLC has made no effort to let people know what you are attempting to do, you refuse to accept email or phone calls and what's posted on your web site is a disgrace to the publishing industry. How can people comment when they don't know anything about it? In spite of all that, you got comment anyway, it was against your proposed plan but you go on and make a proposal that still "does not NOT concur with the commenters?" Prior to this meeting, the TLC had at least 200+ signatures/comments of opposition plus another 600 to 800 comments that I have in my possession to turn in - Perhaps it's time to change the rules on who should receive comments on proposed rules in the future for state agencies - someone who is open and unbiased maybe?) MS. CLOUD: Commissioners, when we have a big jackpot and we see that the sales are greater than the advertised jackpot, it has been the policy -- or my procedure that we bump the jackpot in order to cover the span of dollars as best we can in projecting where we're going to be when that draw is over, so that the player does get the benefit of the higher jackpot amount that was not anticipated at the time the estimate was forecasted. We do a really good job of forecasting our jackpots. It's only at the lower levels, as you know -- and that's the reason we changed the matrix on the Lotto game to start with -- it's at the lower levels that we don't have the participation in the game that we need in order to remain where we are with that jackpot. At four, six, and nine, we're subject to having to pay for the reserve. So this is a way that we would be able to roll any excess over the advertised into the jackpot amount for the beginning levels or the next jackpot level. (NO - the winner is entitled to the full amount that is in the jackpot when he wins - there is no "excess." If you don't have participation at the lower level, it's not the players fault and it's certainly not the winners place to help you pay for over-estimating other jackpots. Also, you just said "We do a really good job of forecasting our jackpots." If this is true, then why do you advertise $4, $6, & $9 million when you know sales don't justify those figures? I think I just figured out why you decided to pay the "advertised jackpot amount" in 1997 - you knew you were over-estimating "unreasonably" and you didn't want to get caught. Is that it? ) COMMISSIONER CRINER: Let's just -- what you're saying is it's just good business. If we're going to pay $50 million and we raise $60 million, that difference of 10 goes into a reserve. MS. CLOUD: Right. Well, in order to -- it won't really be acted -- it won't be treated the same way that the reserve is treated. The reserve is there to make up a difference if we're short on a jackpot and -- but it will be automatically, hopefully, rolled back into the next future jackpot that it can be rolled back into. But it is part of the reserve. The way the rule is set up, it would be looked at as part of the reserve. COMMISSIONER WHITAKER: In other words, Linda, you try to estimate as closely as you can - MS. CLOUD: Yes. COMMISSIONER WHITAKER: -- what the actual percentage is. MS. CLOUD: Right. COMMISSIONER WHITAKER: This is to make it clear what happens if you're slightly off to the high end or the low end. MS. CLOUD: That's correct. And players look at what we're advertising in the jackpot. That's what they're playing for. They're playing for what we say the jackpot is. If you go in and pay a player less than what you advertised -- more states have gotten in trouble doing that than not. The players then really feel cheated. (Wrong again ... players have had it drummed into their heads since inception that the advertised jackpot amount is only an "estimated amount" - The only players that feel "cheated" are those who take the Cash Value Option - the TLC has done a poor job of explaining that the TLC invests 37.532% of sales and they hope to get a return of the estimated advertised jackpot amount for the top prize winner over a 25 year period. The Cash Value winners do not understand this is how the "advertised jackpot amounts" are determined. After they get this part embedded in their heads, they then learn how much they are going to pay in taxes so that's why they feel "cheated." When they expect $4 million but end up walking away with $900,000 - YES - I can see how they would feel "cheated.") COMMISSIONER WHITAKER: So moved. COMMISSIONER CRINER: Seconded. CHAIRMAN CLOWE: Moved and seconded. Discussion. I have a couple of items. Wow, you-all are moving. I just wanted to make sure that I understood what your policy is, because I think that's very important in this decision. What I think you've told us is that your policy is if you come out with the advertised jackpot and if sales are very positive, that you will then increase the jackpot advertising. Thank goodness for Commissioner Clowe - not so fast guys is right - this is important stuff! Doesn't anyone want to know how much the TLC has over-paid 6 of 6 winners since 1997? And Ms. Cloud did it just to keep from getting caught "over-estimating" the jackpots. MS. CLOUD: Right. Increase the jackpot amount before the -- CHAIRMAN CLOWE: For the advertising. MS. CLOUD: Yeah. Right. CHAIRMAN CLOWE: So what you are doing in that policy is, if we announce an $80 million jackpot and the sales are very strong, you now announce that the jackpot will be 82 or 84 or 85. That makes it an advertised amount. MS. CLOUD: Right. CHAIRMAN CLOWE: So you are -- by virtue of reading the sales, you're putting the floor under that. And that's within this rule. COMMISSIONER WHITAKER: What do you mean by "the floor under that"? I didn't quite -- CHAIRMAN CLOWE: Well, it's the minimum. It raises the advertised amount from 80 to 82 or 84 million, and you have increased that and put the floor under that. MS. CLOUD: That's correct. CHAIRMAN CLOWE: You've increased the amount of the advertised jackpot, so -- MS. CLOUD: During the draw period. CHAIRMAN CLOWE: During the draw -- so you are creating, with your policy, that flexibility to increase. You don't decrease it, ever. MS. CLOUD: No. CHAIRMAN CLOWE: But you increase it. So then we could have the draw and it's 84 million and the sales exceed that, and maybe we have 87 million; then 3 million rolls into the next drawing. MS. CLOUD: To the reserve -- CHAIRMAN CLOWE: The reserve funds -- MS. CLOUD: -- that can be used in the next drawing. CHAIRMAN CLOWE: Towards the -- Let him say it Linda - you need that money to go towards the $4 million pot. Let's get it on the record. MS. CLOUD: Right. CHAIRMAN CLOWE: -- let's say, 4 million -- MS. CLOUD: Right. CHAIRMAN CLOWE: -- that is our minimum. And it's my understanding that you intend to continue that policy. (The "minimum" should be set according to sales - not by ego's and pretense of having something that you don't.) MS. CLOUD: Yes. Yes, absolutely. ("OH YES" is your answer - and if this rule passes then you could conceivably raise that minimum to $5 million just so you can "try" to entice sales. Shoot, at the rate you're going, it may even start out at $10 million and you know with the odds of this game that you can literally take money away from those higher jackpots just to help you when you "accidently" have a winner - huh? Linda - when Lotto Texas began - it started out at $2 million, then raised to $2 and one-half million - remember? There's no shame in this - 6 of 6 winners should receive the same exact percentage of sales and you have no right to this kind of control. This is a pari-mutuel game - so run it as such. ) CHAIRMAN CLOWE: And I want that clarified in my mind, because if you announce a jackpot and you change that policy -- and 80 million, and maybe the sales go to 87, where you now, under the current policy, are increasing it, you stop that. That would be a change which I would not anticipate you'd want to make based on -- (Yes, you hit the nail on the head. That's exactly right - millions of dollars tend to make people do funny things and Linda Cloud would be no exception. This is the EXACT reason this proposed rule should be tossed out faster than it arrived - the Commission is already on "borrowed respect" - not giving ALL players their rightful percentage of sales will probably destroy the commission's reputation once and for all. This is an under-handed stunt - to say the least.) MS. CLOUD: No. And Commissioners, I have -- this is the policy that I've had since I've been in this job. That was not the policy, necessarily, prior to my administration. (That's right - the TLC always paid winners their rightful percentage of sales prior to your tenure.) However, I want you to know -- and you know this without me telling you -- Lotto Texas is jackpot driven. In order to bump those jackpots, you're driving sales. And that's what we do it for. We don't want to leave a jackpot stagnant if sales are greater. We want to bump that jackpot so players get more excited and it gets more Lotto fever and you get more sales and the excitement of the whole thing. (This is only applicable when the jackpots are in the $70 to $300 million range. And snitching $5 to $7 million would be easy and go a long ways given the total number of winners the game produces now. In the history of Lotto Texas, show me "bumped advertsied jackpots" in the lower levels.) CHAIRMAN CLOWE: I understand that now that we've discussed it. And I want the commissioners and the staff to understand it. And I want it on the record so that we can look back and say, well, what was the intent here. Because, you know, we're not all going to be the commissioners forever, and you're not going to be the executive director forever. And this a policy that we're following and supporting with this rule change. MS. CLOUD: Absolutely. CHAIRMAN CLOWE: And I want a good discussion on the record about why we're doing this and what the intent is. COMMISSIONER WHITAKER: Let me add this, also; and that is, if you anticipate it or estimate it at 84 million, in your hypothetical, and advertise 84 million, but it actually came in at 83 and a half -- MS. CLOUD: We'd pay 84. (This is fishy, bad business but said with such confidence. Got something up your sleeve? Nobody pays more than what they owe. The TLC only owes the 6 of 6 winner his rightful percentage of sales and not one cent more.) COMMISSIONER WHITAKER: -- you would pay 84, and you'd take that half a million out of the reserve. MS. CLOUD: That's correct. COMMISSIONER WHITAKER: And that, again, is to give some stability and predictability to the players. MS. CLOUD: Right. So the players are not faced with less than what they thought they were going to win. (I disagree - this doesn't give "stability and predictability" to players. Player's don't even know this - like it was explained by Kim - players accept your rules and when you say this is how much is in the pot, they accept it.) CHAIRMAN CLOWE: And that's happened. MS. CLOUD: And that has happened. COMMISSIONER WHITAKER: Right. And I just wanted to get both sides of it, up or down. CHAIRMAN CLOWE: So that's what I meant when I said she's putting a floor under it when she advertises an increased amount. She can never pay less than that amount, but sales can exceed that. MS. CLOUD: And all the more reason -- I mean, we watch the $80 million jackpot daily, hourly, with sales. And we increase that -- you've only got a window time of, like, three days before the draw. So we increased that $85 million jackpot, I think, on a daily basis there for a while. It was the last day of sales that kicked that jackpot over what we had forecasted, and that was because we had $30 million in one day in sales. So it did go over, and it went over by just -- several -- about $3 million or $4 million over what we had projected. But there was no way we could have done anything about increasing it at that time because it was in the last day. COMMISSIONER WHITAKER: How fast can we change the numbers on those billboards? COMMISSIONER WHITAKER: Because as I recall, with the larger jackpot, it was still advertising at the lower level. MS. CLOUD: We had a -- COMMISSIONER WHITAKER: That is the common perception of people I ran into. MS. CLOUD: We had problems with our billboard company. I think we have resolved those problems. MS. KIPLIN: And the billboard vendor is actually a subcontractor of the general market advertising, our vendor.One thing I would like to point out is that there is a definition in this rule making of an advertised jackpot, primarily to respond to the issue that Commissioner Whitaker just touched on; that is, you know, what is the advertised jackpot. And this makes clear -- I think it's pretty clear anyway, but just to be very, very clear, the jackpot amount is the amount that the Commission establishes for each drawing and authorizes commission vendors to publicize. And there is a process in place within the Commission in which vendors are authorized to publish the amount. There is paperwork and documentation on what has been approved as the jackpot and what is communicated to those vendors to publicize. COMMISSIONER CRINER: What's -- I'd go back to the sales chart, since I'm a salesman, I guess. That's what I always look at. What's our season? Every business has a season. MS. CLOUD: The fall, Christmastime, and the first of the year. COMMISSIONER CRINER: And that's what it shows. MS. CLOUD: Yeah. COMMISSIONER CRINER: It's, like, man, everybody that's getting ready to go to Thanksgiving dinner has to buy a ticket. And it runs into March. MS. CLOUD: December is very, very strong for the Lottery Commission -- COMMISSIONER CRINER: Right. MS. CLOUD: -- but the summer months are not. This is our slow season we're coming into. COMMISSIONER CRINER: And it's on here (indicating). CHAIRMAN CLOWE: I have a second issue I'd like to discuss before we vote; and that is, in this rule, the use of the term "net present cash value." Would you give me a definition of how you view that? What does that mean in this use? MS. KIPLIN: Well, I probably would call upon Mr. Sanchez to -- CHAIRMAN CLOWE: I thought maybe you would. And he's here. MS. KIPLIN: -- to respond to that question. I will tell you, Commissioner, that the amendment is within this package and was also within the Subchapter D package to respond to the comment that we received -- not part of any rule making -- that was just received from a consumer action group that said, you know, the way you've got it right now, in terms of cash value, you don't make it clear that what you're paying is the net present cash value. So that when it shows the -- you know, let's call it the 80 million -- that 80 million is actually what would be paid out over the 25 years. And so the amendment that's within this package, and also the other one, was really to respond to the letter that we received, and saying, you know, you're right, and we ought to go ahead and do that and make it clear to our public. CHAIRMAN CLOWE: I understand that. But I want an understanding about the term "net present value." Are we using it in the financial sense, Bart? MR. SANCHEZ: Yes, we are, Commissioners. Again, my name is Bart Sanchez. I'm the financial administration director. I think it's a financial term that I think some of you have heard. "Net present value," are you familiar with that? And I think this was just expanded to a comment -- CHAIRMAN CLOWE: Let's get it on the record. State it for us, all the uses -- MR. SANCHEZ: Net present value is -- for example, using the -- we have a $25 million jackpot that we're going to pay in 25 years. We buy investments that would yield sufficient moneys to pay the prize winners. So, for example, that will cost us, just in the example, maybe 20 million. That is, to me, what I consider an interpretation -- that the net present cash value that we will pay, 20 million to yield 25 million in 25 installments. So basically, with the comptroller, the treasury, we put the order in. For example, it's a $25 million jackpot, and they yield -- how many investments -- 24 investments, individual investments. And then, depending on the market, depending on the rates, that will determine what the actual cost of those investments will be. And that, to me, is the net present cash value that we will pay. CHAIRMAN CLOWE: That's almost looking at it backwards. In the financial world, if you have an obligation that's due in 20 years and you say I want to pay it off today, what's the net present value of this? And the net present value comes back, and it's considerably less than what the maturity is at the date. MR. SANCHEZ: Correct. CHAIRMAN CLOWE: And so we're doing it almost backwards and figuring forward. And what we need to make sure we don't have any confusion about is when people say "cash value." They don't ask for net present value ticket. They ask for cash value ticket, as opposed to -- what's the most popular term for the long term payout? MS. CLOUD: Annuity. CHAIRMAN CLOWE: Do they use the word "annuity"? MS. CLOUD: That's the word that's used. CHAIRMAN CLOWE: Is that what a player asks for when they step up to the counter? CHAIRMAN CLOWE: What's the word, Robert? What's the common term for it? MR. TIRLONI: They would probably ask for annual payment, an annual payment option, as opposed to a cash payment option. CHAIRMAN CLOWE: I think that's correct. And it's important that we understand those differences, because in adopting these rules, we want to make sure we all understand what we're doing. COMMISSIONER WHITAKER: Well, then, let me add this, since you added that. COMMISSIONER CRINER: Yeah. Straighten that out. COMMISSIONER WHITAKER: There are different ways of calculating net present value. And do you see a need, Ms. Kiplin, to put in a standard that we use, a particular formula we use? MS. KIPLIN: No, I don't. And the reason for that is that when a player purchases a ticket, they abide by all of our rules, our statutes, our procedures, and directives. We've got two reported decisions, not quite on point, that had to do with a couple of tickets: one, in particular, that had a problem with it on the printing, and the other one was a person that says that they got wrong numbers back. But it's clear that it's the player who is agreeing to abide by all of our rules and directives. And this is one of our procedures. They have got this very well documented down in the financial administration division about how they go about purchasing these investments. So my answer to you is, no, I don't believe that we need to get into that level of detail because those procedures are already incorporated into the game rules. COMMISSIONER CRINER: Well, you just kind of got me a little nervous here now. I'm kind of with Tom. Let's not use some backwards terms with the public. If they walk up to the -- what's your window called -- if they walk in to cash their tickets -- MS. CLOUD: The claim center. COMMISSIONER CRINER: If they walk into the claim center -- there we go -- if they walk into the claim center, the public is going to use the words we frame for them to use. And so let's make it easy for them. If they want all the money at one time, what do they say: I want my cash value? Just give them the cash value. If I want it paid for in annual, let's say "annual."If we start using "net present values" and start turning around and being very financial about it -- which is good if we all have a financial background, but nine times out of ten, the person standing there asking for money with the winning ticket is not going to have a financial background. So I'm kind of like, let's just make it very simple to ask for the money in the rules, and let's give them the money. MS. KIPLIN: Okay. Well, let me be very clear, because the time that the player must designate how they want to be paid in the event that they actually win is at the time they purchase the ticket. So that entire communication is -- COMMISSIONER CRINER: Well, we're making the rules for purchasing the tickets right now. MS. KIPLIN: Sure. But I want to be clear, because you, on the record, have said that at the time they come to the claim center -- for all those people who are going to read this transcript and understand that this is part of the rule making deliberation -- that player must designate that at the time of the purchase of the ticket. Now, to go to your question -- Excuse me Kim - but I need to say something here. While I have not confirmed this, I have received notice that there is a new Federal law that says something to the effect that if the annual payments is paid out over a time period greater than 20 years, and if a prize is claimed within 60 days, it is mandatory to let the player have the option to choose the Cash Value option. I think this is something the TLC should check into. It's kinda important ... I think some of the other Lotteries have already made this adjustment - at least that's what I heard from several of those commenters who opposed this proposed rule change and I did verify that one state actually put this in writing ... so .... COMMISSIONER CRINER: Wait a minute. Let me go back and just make it very -- let me make it as clear as I can. We're talking about a rule here. Okay? Let's make the rule as easy for a person to collect as possible. And that's my point. And so whether they buy the ticket yesterday or today -- and in deliberation, my point is, let's not use terminology that's going o be confusing to the player, because that turns people off. MS. CLOUD: But in paying the claim for a cash -- what we call today a "cash value option," we have to pay the net present value. We have to pay what it was going to cost to purchase the 25-year annuity at the time the prize is claimed. Okay? So whether we say it in the rule or leave it as cash value option -- COMMISSIONER CRINER: Then I just need to ask Tom. Would it be better to define "net present value," because it's -- the way you look at it as kind of backwards? CHAIRMAN CLOWE: Well -- COMMISSIONER CRINER: That's where I'm confused. CHAIRMAN CLOWE: I think I'm comfortable with our practice and the rules of the game. But this is an issue that comes up from time to time. And I thought it was a good idea to air it out right here, because we do have people who have assumed, I think, that everybody understands the rules. And we're finding that in some cases, folks don't understand the rules. COMMISSIONER WHITAKER: What's the nature of the confusion that you have picked up? CHAIRMAN CLOWE: When people opt for the cash option. My take on the players is that's what they ask for. And they have seen the advertised amount, which is the annual payout, and they get a substantial reduction in the amount of money that they receive. I think that's where the point of confusion comes up. Now, my -- MS. CLOUD: The actual difference is basically around 50 percent, about half of the annuitized jackpot amount. It is roughly that. It's not that, exactly. That's why it has to be on the net value at the time the purchase is made. CHAIRMAN CLOWE: And that's the amount that I had in my mind when people have asked me; not the difference in 20 to 25 million. I think it's a lot more than that. MS. CLOUD: It is. CHAIRMAN CLOWE: Close to 50 percent. MR. SANCHEZ: If I may add, I thought we were just clarifying what the cash option was, how we calculate the cash option, because if even one person doesn't understand how -- what we do to come up with that amount -- MS. KIPLIN: To respond, Commissioner Whitaker raised it and asked the question, do I think it's necessary for it's being here, and I responded we have procedures. Commissioner Criner has also raised that issue in terms of the player; what does the player know. It's your rule. If you-all would like to have some definition of net present cash value in this rule so that it's clear, then that's your direction and I'll be glad to work with Mr. Sanchez to get that language, and we'll put it in here. And then you can have me bring it back to you at the next commission meeting or vote to work with him. And if he is -- CHAIRMAN CLOWE: We're having a discussion now to get to that level -- MS. KIPLIN: Okay. CHAIRMAN CLOWE: -- of comfort. And -- COMMISSIONER WHITAKER: The term I use is "net present value." And then I would separately, if you want a simple term for it, say "cash option." Right? COMMISSIONER CRINER: Well, whatever we thought the public -- COMMISSIONER WHITAKER: Well, there's two different points here, I guess. One is what the public can quickly call it and understand it in a general sense. And then the second would be the precise definition in the rules -- CHAIRMAN CLOWE: And I want to -- COMMISSIONER WHITAKER: -- that the technocrats we go to -- CHAIRMAN CLOWE: I want to write a definition because I want an understanding that we're actually figuring it forward and what the value will be, as opposed to -- present value, to me, has always meant, in a financial sense, what it's worth right now. Take this lease and mature it. Take this note and mature it. And we're going to do it in an opposite way. That's okay. Nothing wrong with that. Now, Robert, give us what the players have in their minds, if you will, when they step up to the ticket counter and buy the ticket. What are the two things that they can ask for? Give us that verbiage. MR. TIRLONI: I believe what the players ask for when they purchase a Lotto Texas ticket, they -- if they haven't already marked it on their playslip, they will be asked by the clerk which they want. And I think the terminology that our players use are "cash value" or "annual payments." I think that's how they break it down. CHAIRMAN CLOWE: Or maybe: Will you take the cash option, or do you want the annual option? MR. TIRLONI: Or -- yes. Most of the clerks probably say do you want cash or do you want the annual payments. Yes, this is EXACTLY what the clerks say - and I totally agree with the KISS rule! :)) <great big grin> CHAIRMAN CLOWE: Okay. Okay. I think that's right. I agree with that. Now, that's an issue we're trying to define and then -- do I understand, Linda, you're coming down in these rules on committing to the advertised amount as being what the Commission is going to pay? MS. CLOUD: Yes. CHAIRMAN CLOWE: And you're comfortable with that and you're satisfied with that? MS. CLOUD: I'm comfortable with that. I want the commissioners to be comfortable with that. If there is any more explanation needed -- CHAIRMAN CLOWE: All right. Now, are we also dealing with the issue of what the advertised amount is, whether it is the cash option or the annual payment option? MS. CLOUD: I don't know of any lottery that would advertise a cash option. They would advertise an annuitized option. Oh my - if you advertised the Cash Value Option figure there would go your big jackpot figures! You would much rather handle explaining to those "few" winners why they are only receiving $1,457,946 million instead of the $4 million they saw advertised. Huh? Then let's not forget the taxes that come out of that. Gosh, there went their "millionaire" status! Why don't you try promoting the truth - "Estimated $2.5 Million - Paid out over 25 years." And while you're at it, why don't you re-write the rule this time to reduce the number of balls to 50, pay all "pari-mutuel" prizes down to the penny, get rid of the reserve fund, and either do away with the $5 prize or divide the payout structure a little bit more fairly. The 4 of 6 winners got ripped off. You want your sales to increase - create winners, not losers - and give your retailers an incentive to sell for you. And paying them 1% for cashing winning tickets is a start but still not enough. Do you have any idea how far the millions of dollars that you have spent "over-paying" lotto winners since 1997 could have gone towards making your retailers and players happier. The Texas Lottery shouldn't have ever had to worry about lawsuits - if the TLC offers a "pari-mutuel game" and "if" the TLC pays out the correct percentages of sales and "if" the TLC keeps the "estimated advertised amounts" within a reasonable guesstimate and "if" the TLC advertises the TRUTH at all times, then the TLC should have nothing to worry about. But the TLC does have plenty to worry about now - because in 1997 the TLC opted to pay many winners more than their rightful percentage of sales which opens the doors for other 6 of 6 winners to ask why they didn't receive an increase too .... then let's not forget the many misleading advertisements floating around too ... especially those new ones concerning Texas 2 Step.) CHAIRMAN CLOWE: Then let's get that understood -- MS. CLOUD: Right. CHAIRMAN CLOWE: -- in this discussion. We are talking about advertised amount being the annual payment amount. MS. CLOUD: That's correct. CHAIRMAN CLOWE: The greater of the two. MS. CLOUD: That's correct. MR. TIRLONI: That's correct.That's what we advertise. MS. CLOUD: In years past, there was not an option for any lottery. It was -- they paid the annuitized value. They bought -- they paid long term. It wasn't a cash value option. It has not been up until the last maybe ten years that lotteries have looked at cash value option for allowing players to claim a prize. CHAIRMAN CLOWE: What's the history of this lottery on that issue? MS. CLOUD: This lottery started out with an annuitized jackpot, an estimated -- CHAIRMAN CLOWE: It didn't have a cash option? MS. CLOUD: There wasn't a cash option until -- Robert, what year did we go with the cash option? Was it '97? MR. TIRLONI: I believe that was back in '97, yeah. MS. CLOUD: Yeah. CHAIRMAN CLOWE: So that's the history of this lottery? CHAIRMAN CLOWE: Okay. MR. TIRLONI: Commissioners, we've got -- if I can add and piggyback onto what Linda was saying, we do have a lot of requests in correspondence from our players about what players choose. And as Linda said, most of our players are right now choosing the cash option because they would prefer to get back the cash value and make whatever investment choices they would like to make. So right now, on our ticket sales on Lotto Texas, we have -- a higher percentage of tickets that are sold are our cash value tickets, as opposed to annual payment tickets. CHAIRMAN CLOWE: What would you say that current percentage is? MR. TIRLONI: Off the top of my head, I would probably say a 60/40 split. Sixty percent of the tickets, I would say, are cash value, as opposed to the 40 percent being annual payments. MS. CLOUD: I don't disagree there is a lot of confusion out there about what is the jackpot amount when we pay a cash value prize versus the advertised estimated jackpot for an annuitized jackpot. And we are constantly on the "ask the director" questions from the players. We're responding to that with each and every one of the players that write in. So I would prefer to make it as clear as possible in the rule to make sure that it's understood, the difference between the two. CHAIRMAN CLOWE: I think that's right, Linda. I think this is an opportunity for us to clarify this, and we want to do a good job in this rule making and clear up some of these things so that there is as broad an understanding as possible. I don't think there is much confusion in players' minds, but any misunderstanding can be eliminated by virtue of clarification of the rules. I think we want to do that. I think it's an excellent discussion. We have a motion that has been made and seconded, but we're in the discussion period. Where does this bring us down, Commissioners? What do we want to -- COMMISSIONER CRINER: Friendly amendments. CHAIRMAN CLOWE: Sir? COMMISSIONER CRINER: Some friendly amendments. CHAIRMAN CLOWE: Well, we could withdraw the second and motion and direct the staff to rework this proposed rule, leaving the present rules in place, and come back to us in the next meeting, based on this discussion, with clarifications that would satisfy us. (Yes, please do.) COMMISSIONER CRINER: I think I made a motion. I made a motion. COMMISSIONER WHITAKER: I made the motion. CHAIRMAN CLOWE: I believe Commissioner -- COMMISSIONER CRINER: I withdraw my second. CHAIRMAN CLOWE: You withdraw the second. And what's your pleasure? COMMISSIONER WHITAKER: That's fine. I withdraw. (Thank-you.) CHAIRMAN CLOWE: Okay. The motion and the second have been withdrawn. General counsel is instructed, by virtue of this broad discussion and the expression of the sentiments, to reform the rule to meet the needs discussed. We'll leave the present rules in place. (By "present rules," I can only assume you mean the last adopted rules? I can only trust this means the Commissioners will not adopt the rules currently up for adoption nor will you adopt any others until they have had a 30 day comment period. I have learned that a state agency can leave a rule posted for 6 months, then if it's not adopted, the Texas Registry automatically pulls it. But they also said that agencies generally withdraw the rules out of courtesy. So is the current proposed rule being withdrawn?) MS. KIPLIN: Just to be clear, the present rules in place -- the Texas Two Step is an advertised jackpot. We'll continue to pay the advertised jackpot. The Lotto Texas is a jackpot driven by sales. MR. TIRLONI: And just to be clear, too, the Texas Two Step has no annual payment option on that game. That game is a cash game. We do pay -- regardless of what the jackpot climbs up to, we do pay that jackpot in cash in a lump sum payment. So the 25 annual payment or the cash value discussion really does not apply to the Two Step game, per se. CHAIRMAN CLOWE: That's an excellent discussion. And Kim, I'm glad it came up. It is very beneficial to all of us. You always make these things so interesting. CHAIRMAN CLOWE: I'm sure you and your minions will be very successful in your task. You have very effective minions. MS. KIPLIN: Thank you.
The meeting then moved to the next item on the agenda ... So folks, this is where we are. Comments anyone?
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