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| BEFORE THE TEXAS LOTTERY COMMISSION AUSTIN, TEXAS NOVEMBER 29, 2000 ****************************************************** BE IT REMEMBERED that the above-entitled matter came on for hearing on the 29th day of November, 2000, beginning at 8:28 a.m. and ending at 6:08 p.m., at the TEXAS LOTTERY COMMISSION, 611 East Sixth Street, Austin, Texas, and the following proceedings were stenographically reported by Mary Scopas, RPR, CSR for the State of Texas. APPEARANCES Chair C. Tom Clowe, Jr. We have a number of individuals who have asked to appear before the Commission this morning. And we want to honor those people by having them appear out of order on the agenda as early as possible. But I am going to defer beginning those appearances until Commissioner Whitaker is here. ************************************************************************************ And now, I'm going to ask that we take a five-minute break. At the return and beginning again with the Commission, we're going to call on Professor Busald and his group from San Antonio. To give you a little advance notice there. (RECESS) CHAIR CLOWE: We continue to depart from the published agenda now with the appearance of rofessor Gerald Busald from San Antonio College. And Professor, I think you have a number of students with you this morning. I'm going to call their names out for the record. And you may wish to add some who possibly haven't filled out appearance forms. Nicole Cunningham, Christopher Whitney, Kristin Brotherman, Gene Bowen. Is that everyone that's here who is going to appear? MR. BUSALD: He is not my student. CHAIR CLOWE: Right, right. You're with a different issue. Thank you, sir. Is that everybody? MR. BUSALD: I have several students who are not quite of the temperament to testify in front of this Commission. But they're here so that -- COMMISSIONER WHITAKER: Oh, why not? MR. BUSALD: Would you like my students to stand so that you can -- CHAIR CLOWE: Yes, we would, please. MR. BUSALD: Will my students please stand? CHAIR CLOWE: Great. Thank you very much. Let me -- before I call on Professor Busald to tell us what he has -- I beg your pardon? MS. KIPLIN: I'm sorry. What item? CHAIR CLOWE: Public comment. MS. KIPLIN: This is public comment? Okay. MR. BUSALD: Excuse me. I thought we were addressing number three, which was advertising. MS. KIPLIN: Lottery advertising. CHAIR CLOWE: You may address that. But you're appearing under public comment. So you'll be - BUSALD: Well, I asked on my form to be on item number three. CHAIR CLOWE: Well, I don't think your name is on item three, is it? MS. KIPLIN: No. The reason I'm asking that question is to get an idea -- when I listen to his comments, then what I'm going to try to do is figure out whether it fits into one of the items that are on the agenda, with an eye toward the fact that I anticipated from the last discussion, the last Commission meeting that Mr. Busald would be here. And given his comments at that meeting and the fact that his comments were addressing Lottery advertising, I left that item as it generally is. And the reason that it's important to me is because, based on the nature of his comment, it may or may not limit your ability to deliberate the substance of his comments. CHAIR CLOWE: All right. That's fine. Very good. To you students who are here, my assumption is that you've probably never attended a Commission meeting of this type before. And you've been very patient. And you've learned probably more about bingo than you ever want to know. And now you're going to educate us on your math studies. But I would like to put you at ease and, assuming this is your first time to be here, tell you what is going on here, to the best of my ability. This Commission is composed of three commissioners who are citizens who have been appointed by the governor at the time, and then agreed to serve with that appointment approved by the Senate for a six-year term. Commissioner Whitaker is the newest commissioner. She is from Dallas, Texas. Commissioner Sadberry is the most tenured commissioner. And he is from Houston, Texas. And I am the middle commissioner. And I'm from Waco, Texas. We serve at the governor's pleasure for no compensation. Now, this is a public service activity for the three commissioners. This Commission meets ordinarily once a month. It is mandated by the legislature to meet six times a year, minimum. Now, the staff of the Commission is headed for lottery operations by Linda Cloud, who is the lady here on my left and on your right. She is a paid employee of the State of Texas. On her left is Billy Atkins, who is the director of the Charitable Bingo Operations Division. And he is a paid employee of the State of Texas. They come here and run the lottery operation and the bingo operations every day of the year. The lady to Linda Cloud's right is Kim Kiplin, who is the general counsel of the Commission. And she is a staff paid employee. And she is not a direct report to the Commission. Ms. Cloud and Mr. Atkins are. The internal auditor -- would you please stand up? Debra McLeod is a direct report to the Commissioners. And then the staff -- thank you, Debra -- reports to those individuals. It is our responsibility to oversight the operation of the Commission, although we are not here day to day. We are responsible. And that's why we meet once a month now so that we can review the activities that are ongoing in both lottery and bingo activities. Again, we're happy to have all of you here, Professor Busald. And we look forward to your presentation. Thank you. MR. BUSALD: Thank you, Commissioner Clowe, and thank the other Commissioners. I appreciate your invitation to return to this meeting so that we can continue the discussion we started at the last meeting. For the record, I read my testimony from last time. I would apologize for any time I interrupted. I certainly don't like that. I would also like to correct two math errors in my testimony, both of which were basically off the top of my head in these statements, and not that we couldn't do the math. One was that I said over 12 and a half billion lottery tickets had been printed and sold in the state of Texas. That's inaccurate. It's 12 and a half billion dollars' worth of tickets, which is not necessarily 12 and a half billion tickets. So just to correct the record from last month. And the other is that I said that -- concerning Lotto that if you stacked up 25.8 million Lotto -- or pieces of paper or Lotto play slips, that it would be as tall as 25.8 Towers of the America. And that's obviously not right. It's as tall as 11 and a half Towers of the America. So I just wanted the math on the record at some point to be correct, because I think we have a very good reputation of being accurate on our mathematical presentations. So those were misstatements. If I could, I would also like to clear up one other area before we get into the really germane issue today. And that is, one of the things I testified about last time was my class' interaction with the Commission as far as the $40 million jackpot winner in San Antonio, the girl that won. And so in your handout, I have a copy of the press release. And one of the issues I addressed was, it seems like press releases are not necessarily screened as accurately as they might be. So if you would look at -- and this is about the group in San Antonio. And I would specifically like to turn your attention to page two of that release, which it seems to me an amazing coincidence -- and I highlighted it for you to try to ease your way through this. But I find it amazing this particular error, that in the Cash 5 game where a player must match five of five winning numbers for a top prize averaging $75,000. As I testified at the last meeting, that is the exact issue that first caused us to appear before this Commission. Not to the Commissioners directly, but interact with the Commission over three and a half years ago. And of course, the average prize on that game is 57,575. It seems that the problem that I pointed out at the last meeting really hasn't corrected itself, because immediately after we have a press release that is putting out a three-and-a-half-year-old inaccurate number. And just -- and because it affected us directly is the only reason I point that out. And I don't think -- I don't know if -- well, I'll let the Commission address that later or the staff address that later. As you know, the main point that my class is really concerned with and the issue that we have gotten involved with is scratch-off tickets. And it's kind of funny because you mentioned Governor Bush earlier. As I got prepared to testify, I kind of had an image come to mind. And that was, on one panel, there is an outline of the state of Florida with Governor Bush in front of it. And the statement would be, if a state says you're a winner, does it necessarily mean you're a winner? On the second panel, there is an outline of the state of Texas and a scratch-off ticket. And if the state says a winner, are you necessarily a winner? And that's the whole crux of the issue. On page three, I have a letter. And I -- to let you know, I squeezed this letter onto two pages, originally a three-page letter, a letter that I received from Linda about this issue. And that she had contacted Dr. Eubanks about it. Basically, the original information is stuff that we certainly already were aware of. So I'd like to just go to page four, if I could, of the handout, the back, and hone in on the scratch-off issue. And I have looked at the particular paragraph in mind. I have circled that. And so she talks about the prize point for instant games. Our position is that when the prize in a game is another ticket in that particular game, the Commission should not include this in the odds of winning. And of course, as she says, she respectfully disagrees. And she asked Dr. Eubanks' opinion on this issue. And his position is that it is not making an accurate representation to the players. Hopefully we'll have a chance to talk about that. It is also my understanding the Commission has not received complaints from players concerning the matter. To me, that is a totally vacuous argument. How can you say, well, players haven't complained, when players aren't aware of it? It seems to me that that argument -- you know, how -- we have come up and pointed out the issue. Staff said they weren't aware of this before. So you know, the fact that people haven't complained, people haven't realized. So I think that should be something that should be brought into consideration. Finally, we realize that the counting of a ticket, one as a -- what we call a break-even ticket is part of the prize structure. And the final statement, of course, is, at this time, the Commission has no plans to change the way in which the odds are calculated. I hope that doesn't indicate that this was already a closed issue and that the fact we were invited back to testify about this is not already an accomplished fact. And that you would be open to our arguments about this issue. Excuse me. Finally, the other thing I would like to mention in her letter is that we would like to thank Larry King and Toni Smith. They came and addressed the class. I know that Toni wasn't really successful in convincing my students that if you pay two dollars and you get two dollars back that you are a winner, and really didn't particularly address that issue. We worked on some other game issues. And we certainly look forward to having a positive interaction with the Commission. And we want to do that. But that doesn't necessarily mean that you agree with everything that the Commission does. One -- the next item I guess I would like to go on -- go to is page five, the NASPL advertising standards, because I think that's certainly germane to the issue of what we are talking about. And I circled a couple of things that we talked -- I mean, obviously this is a statistics class. But we've talked about ethics. We've talked about media. We've talked before government. We just have other things come up because of the nature of our interaction with the Commission. One thing I just wanted to point out -- and it's not for something to do here. But responsible play public service or purchase media messages are appropriate, especially during large jackpot periods. I would like for the Commission to consider as we face the probability of some very large jackpots in the future because of the nature of the change of the game that they consider doing public service announcements saying, play responsibly. Not just what's on the ticket. Because there were newspaper stories talking about people going and buying a thousand dollars' worth of tickets or whatever as that jackpot approached the over $60 million jackpot. And so that's just part of the industry standards. Two other things that I circled on page six. You should not present winning as the probable outcome. And advertising should not imply that lottery games are games of skill. I cart back to this one that we mentioned last time and say that I think this making a million is easy. Certainly makes it seem like it's probable. And it -- the fact that if you know how to play the game implies that there is some skill. And if you haven't won, somehow it's your fault. And I realize this is semantics. As a matter of fact, I meant to get into that part. Dr. Eubanks said basically it is a matter of semantics whether you call someone who breaks even a winner or not. I agree it's semantics. But I think it's very important semantics. I know that the Commission can do the math. And there is no problem with doing the math. It's a matter of viewpoint and how you are going to deal with that. Finally, number five, I think, on page six there, advertising should not exhort the public to wager by directly or indirectly misrepresenting a person's chance of winning a prize. I know the word winning a prize covers a lot of territory. And we're going to propose as we get further on that the fact that winning a prize -- the public should be apprised that winning a prize might be a break-even prize and that that winning a prize doesn't necessarily mean you're a winner. It means you broke even. Moving on to page seven. Once again, it has something about odds of winning must be readily available to the public and clearly stated. One of the things we discussed as a class as we looked at this was, we thought that these standards are very commendable. And certainly it seems like the industry is trying to control some mispractices in the -- in the past. So they're trying to address some of those issues. The one issue they clearly avoided is, when is a person a winner? And that's the real discussion that we want to have today. If I could, if you would permit me, I think I have a student -- if I could interrupt my testimony. I have a student who is actually the reason we're here today, because she asked me at the beginning of the semester, what about scratch-off games? Because we hadn't looked at scratch-off games previously. We've looked at other games. We look at one game every semester, basically. And I think she has some insight as to, do players consider themselves a winner if they break even. Nicole Cunningham is one of my students who is brave enough. And she would -- would you entertain hearing her, and letting me come up and summarize at the end? CHAIR CLOWE: Sure. Just have her come and join you. MR. BUSALD: Okay. Come up, Nicole. CHAIR CLOWE: Would you state your name for the record, please, ma'am? MS. CUNNINGHAM: For the record, my name is Nicole Cunningham. Due to the stand that the Lottery has taken on this issue, I have brought it upon myself to ask people at random when I'm at a convenience store, gas station, wherever it is that Lotto tickets are sold. I see them buy a Lotto ticket, a scratch-off. And then I ask them, you know, if you get your money back, do you consider yourself a winner? Every single person has said no. They consider themselves as breaking even. And it is from executives of Valero, which is a huge oil and gas company in San Antonio, to a bum that I saw. I have no idea how he got a dollar. But he bought the scratch-off. And I even stopped and asked him. People are not aware that you count the break-even tickets into the odds. And I don't think that's fair. And I don't think it's right. And it's unethical, in my opinion. And besides taking statistics, I do take a class titled business ethics. One gentleman even went so far as to say there was a government conspiracy. And he was an executive. He didn't feel it was right and got very angry. People just don't know. And it's not -- I really don't think it's fair. CHAIR CLOWE: Very good. MS. CUNNINGHAM: And I have a question for you. CHAIR CLOWE: Yes. MS. CUNNINGHAM: If you think -- do you think -- if this were an instance in a private business in the private sector, do you think they would get in trouble for it, misrepresenting their information? CHAIR CLOWE: I don't know. I have been in the private sector for 45 years. And I have found differences of opinion in the private sector that result in lots of different kinds of actions. And I think what we're talking about here today is a difference of opinion. So I think your question is too broad for me to give you a specific answer. I think were you in the private sector, do something that is illegal, you get in trouble. But my standards are higher. I include morality and ethical correctness as well as legal correctness. And I think what we're talking about this morning is a matter of representation. Is that not true? MS. CUNNINGHAM: Yeah, it's true. But if a company misrepresents in the private sector, whatever it is, they are held liable for it. MS. KIPLIN: I think that's a broad statement. CHAIR CLOWE: I think it's very broad. MS. KIPLIN: I'm not going to be able to agree with that. CHAIR CLOWE: I think I can answer the question. And I think that it's a matter of interpretation. And that's what you're here today to do, to give us your interpretation. So it isn't correct to try to go to the end in another area and get an answer that proves your point, which is, I think, what your attempt is. MS. CUNNINGHAM: Well, everyone I have asked, you know, in the public, because I -- you know, I hang out at Exxon when I'm buying gas. And I find these people and I ask them. They believe that you are misrepresenting -- CHAIR CLOWE: I understand. MS. CUNNINGHAM: -- the truth of the odds. CHAIR CLOWE: I understand. MS. CUNNINGHAM: And if it were anyone else, they would change that or they would -- some government agency would force them to change that. CHAIR CLOWE: And we're happy to have your statement. And let that go to the presentation that you and your classmates and Professor Busald are making this morning. Thank you very much. MS. CUNNINGHAM: Thank you. MR. BUSALD: I just felt Nicole's comments were really germane to the issue because she is the one who really brought it to the class' attention and why we're here. And also, she has some insight because she has been very passionate about this issue, as you can tell. And I certainly believe that all of my students agree with that particular statement. We also did receive a set of advertising promotion guidelines from the Commission. Toni provided that to us. And once again, on page nine, the statement is -- I circled it on page nine. That is, while it's not required to state the odds in all forms of advertising, no attempt should be made to conceal or misrepresent the odds of winning. And of course, I realize we're down to the definition of winning. Okay. One of the things that I would like to address next is on page 10. And if you can find the page numbers. I did these obviously just freehand. But there is a press release about the new game Jingle Bucks. And the statement that I circled is, Jingle Bucks has the best odds of winning of any instant ticket we've ever produced, 1 in 2.46. That's correct, given the Commission's definition of winning. I don't know that it's correct. What I would like to point out is that on the next page, page 11, that for that particular game, the total what we call break-even tickets, the $10 return, is 28 percent of all tickets printed. Almost one out of every three or one out of four tickets is a break-even ticket. That's contrary to many of the previous games, including the game I presented last time that the class had analyzed, Triple Blackjack, where 14.8 percent of all tickets printed were break-even tickets. This shows the ability, if you are allowed to call someone who breaks even a winner, that you can control the odds. And that's exactly the point. And so then to brag about, well, these are the best odds of winning -- now, it is the largest percentage of payback, to be fair. I think the payback is 70 percent on this game, which is the largest the Commission has had. And Toni pointed that out. But I do want to point out the difference in the percentage of break-even tickets and how that can control what are advertised as the odds. And so I just have circled that on the 14.8 on the Triple Blackjack. Incidentally, I have one other game here that I have circled. This is a 9's in a Line, page 14. And the -- on that particular game, I believe 10 percent of all tickets printed are break-even tickets. So by varying the percentage between 10 percent and 28 percent, the Commission can directly control the odds of what the Commission is calling winning. The only reason this last game happens to be -- I happen to include this 9's in a Line is because -- and the class didn't find this. This was pointed out by another individual. But if you turn to page 15, the actual handout on this game is obviously incorrect, because I know it's not based on approximately 20 million tickets. For the numbers to work out, it has to be based on 15 -- what did we -- 15.12 million tickets printed. So that particular flier for game 227 is inaccurate just so that -- that's the only reason I have that game in there. The real question comes down to, I guess, truthfulness. And what kind of truth do we want? Do we want a, well, if you look at it that way truth, or do we want the best kind of truth you can tell the people of Texas? We are not insisting that the break-even prize be eliminated. We just ask that it be advertised fairly. What we considered fair -- we talked about this at great length, what would be fair. We said that if the break-even prize is retained, the following statement would be appropriate and 100 percent truthful: Overall odds of winning any prize, including the break-even prize. Because certainly there is a significant percentage of people who if they break even do not consider themselves winners. And I think that's the most truthful thing we can do. I realize -- I perceive a pressure on staff to conform to what's an industry standard. And the industry standard should not be the reason to fly in the face of the logic of what most people consider winning. We all know about industry standards. The industry standard in the tire industry was, if there was a lawsuit, to pay off that person. And then we -- so -- and then we had a bad situation develop because of an industry standard. I don't think that an industry standard is the only reason. Now, I also feel that the -- probably the executive director and the staff's position on this is that if they change the odds, it's going to have a negative impact on sales. And that's obviously what we're talking about and how important it is. I disagree. Most lottery players buy tickets despite what they may or may not know about the odds. And I don't think it would affect it. But what I do feel would have a negative impact on sales is to continue calling break-even players winners and have the media reveal that the Commission is not being as truthful as they might be on this issue. If the Commission truly believes that a player who breaks even is a winner, are they anxious to publicize the fact, or would they prefer that players not be aware of this fact? It's what I call the truth test. The truth test is, do you want people to know? And I certainly -- you know, if the Commission was advertising a break-even -- but I respectfully submit that maybe this is an issue that they just wish people didn't realize. And I would respectfully submit to you that you have an opportunity - and this is what I tried to do three and a half years ago - to turn what staff might perceive as a negative into a positive by emphasizing and even publicizing a change in policy that emphasizes telling the truth as best you can. Players will not rebel if you tell them the truth. But if they perceive that you are trying to hide the truth, that will be a difficult issue. And I certainly do not -- we're not here to destroy the Lottery. We want the Lottery to be as honest as possible. I also would submit that if you make a decision on this issue that places Texas at odds with the industry standard and makes Texas a leader in truth telling, that's a positive. Texas has an opportunity to influence other lotteries to be more truthful and even change their method of stating the odds on scratch-offs. There is nothing wrong with being the leader and telling the truth as best you can. The final point, I guess, is that I hoped that whatever decision the Commission would reach on this issue, that after they are done, they be able to look at these students in the eye and tell them that if they -- if they can tell them that if they spend two dollars for a scratch-off and they get their two dollars back, they are indeed a winner. I hope that's not what you have to tell these students, because, you know, what we tell our students is extremely important to the future of what Texas is. Because we disagree with staff on this issue, I have one final suggestion. And for whatever it's worth, I respectfully submit that the Commission might consider forming an independent ethics advisory committee, because it is an ethical issue. And it's, where do you get the input on these sort of issues? My students have brought up issues in the past. But I know this is a difficult area to deal with. And staff, we feel, has a vested interest in trying to have sales be as great as possible. There is job security. The income of the state of Texas all depends on those. But there are ethical issues to consider. And last meeting, you certainly expressed your concerns about ethical issues. And I certainly appreciated your comments, because I think it applies right to the heart of what we are trying to do. We want the Texas Lottery to be the most truthful. If players decide to play, they should be at least armed with the truth. That's all we're asking. And I realize it's a matter of semantics. But I ask you to consider: What does the common person consider winning? And I don't think that staff's position on this is what the common everyday lottery player believes is winning. CHAIR CLOWE: Would you repeat your suggested sentence for us, please? MR. BUSALD: Yes. Let me go back to this. Overall odds of winning any prize, including the break-even prize. Then you're not calling someone a winner who breaks even. It makes it clear. And I don't really -- I don't believe it will impact sales at all. As a matter of fact, once again, I think you have a chance to make Texas the leader in being truthful. I think that's very important. CHAIR CLOWE: Very good. Questions? COMMISSIONER WHITAKER: What is your definition of the word prize? MR. BUSALD: What is my definition of the word prize? COMMISSIONER WHITAKER: Yes. MR. BUSALD: A prize would be even the two dollars, because if it says overall odds of winning any prize, including the break-even prize. To suggest that you're a winner if you break even means that you have basically said, I am donating my two dollars to the Lottery Commission. And if I give back -- get back my two dollars, I have won a prize. And so I realize it flies to the definition of what's a prize and what is winning. But you know, we're trying to do as best we can to be a positive influence on the Commission and what the Commission does. COMMISSIONER WHITAKER: Is it your view that it would be appropriate to call a break-even amount of money a prize? MR. BUSALD: I would -- it would be appropriate to call it a break-even prize. I don't think it would be -- you know, you have to accept the premise to go with your argument that people are not -- they are buying the game entirely for entertainment and they are not gambling. So I don't know that I have an answer that can avoid the other issue. A break-even prize is exactly what it says. It's like a push in blackjack. You played. You didn't win. You didn't lose. Now, I realize the Commission can't change every game. I would suggest if they were to implement this, it would be something that's phased in over time. You can't replace all existing games. You can't -- you know, none of that is reasonable. The -- but that's our position. And you have to decide, do you want the people of -- I mean, I know what -- we're just addressing what the average person considers a winner. And an average person that we talked to considers someone to be a winner if they end up with more money than they put in. COMMISSIONER WHITAKER: The reason I asked you the question is, you've thought about it a lot. And so I just wanted the benefit of your views on that. Related question on the last page you gave us. Is it your view that the statement there that says, overall odds of winning are 1 in 4.68, that most people would not consider those odds to include the dollar prize? MR. BUSALD: Most people, if they see odds of winning, winning means getting more than they put in. COMMISSIONER WHITAKER: Even though just above it under the list price, it lists a dollar as a prize? MR. BUSALD: Yes. But it doesn't list that on the individual tickets. On the individual tickets it says, overall odds, period. COMMISSIONER WHITAKER: So in this context, you'd say that it is disclosed, but your problem is, it's not on the ticket? MR. BUSALD: It's disclosed, not disclosed as well as it could be because, you know, once again, it's, what does -- I mean, the person who sees this, the average person on the street, would have to do all the mathematics we've done to discern whether that includes the dollar prize or not. So is that full disclosure? I'm not here to tell the Commission what to do. Just to express our concerns. COMMISSIONER WHITAKER: Thank you. COMMISSIONER SADBERRY: Would you -- following that question, would you agree that it's not concealment? MR. BUSALD: It's not what? COMMISSIONER SADBERRY: Concealment. MR. BUSALD: On this particular -- on the flyer itself, it's not concealed. On the tickets themselves, because they don't really express what it is, most people, I believe, are kept in the dark. So to the extent, yes, that's concealment if you keep people in the dark. That's my opinion. And of course, it's just one man's opinion. COMMISSIONER SADBERRY: Well, I guess I'll follow up on that, if I may. I'm interested in the database as well as the process of methodology by which you derive your concepts of what most people perceive certain things to be, such as specifically in your comments, winning. Are you aware of or have you and your class conducted -- And by the way, before I go further, I want to compliment your class in their interest and particularly speaking to us and asking questions. I applaud that greatly. We're glad to see that. And I'll go further and say to you that as far back as this agency goes, I have been there since day one. We as an agency, unlike some agencies, are advised through the years to make certain that we acknowledge, invite, and encourage public comment, which generally is covered to the extent -- by the media to the extent the media is interested. Certainly never do anything public interest -- outside the public view to make public comment to us. So I guess I'd say to you that one way that we ensure that the public has the ability to know the truth of what we do, I think, in that regard, is to give venue to the public, to bring it to the public's attention to us directly in public view. It's hard to conceal or deprive the opportunity for truth being ventilated in that context. And I hope that's certainly indicative of your taking an invitation on more than one occasion to do so. And we all learn and hopefully improve our processes by public participation. And I applaud you in that regard as well. Now, getting back to my question, do you -- are you aware of any process of discerning what exactly is the public view or perception that has any kind of study attached to it that -- if I were in the legal context, for example, we would look at an expert witness and say, well, what's your process? What's your methodology? What's your data? I'm just asking: Do you have something you can refer us to to say what your basis for understanding or presenting to us what the public view is might be based on? MR. BUSALD: Yes. I would say it's anecdotal. We -- because of the level of the class, we would have to have a subsequent class on surveying to where we could actually go out and survey people and ask them specifically, if you spend a dollar and you get your dollar back, do you consider yourself a winner? So ours is based on anecdotal from asking many, many, many people. And all of -- I mean, with -- I have presented this at national math conferences. I've only had one mathematician disagree that if you get your dollar back for a dollar, are you a winner. One person said, well, it's okay to call it a winner. So there are -- but just in all my interactions with mathematical groups -- because I have talked about this at national mathematical conferences. And so -- but as far as a survey that I can point to, a scientific survey that says, do you consider yourself a winner if you get your dollar back, no, I can't do that. COMMISSIONER SADBERRY: Now, do you have a preference -- and I appreciate your bringing this to our attention. Do you have a preference -- in your concept of what is truth and all these things, do you have a preference in this specific context of better defining winner or excluding the break-even experience from the calculation? MR. BUSALD: Certainly -- well, certainly that's up to staff to address. We don't want to run the Lottery or tell the Lottery how to do its business. We must -- at last meeting, we pointed out an alternative to the one game where, instead of having the break-even prize a two dollar prize, we put it to a three dollar. We did the math on that. And it didn't greatly increase the odds, because -- that's actually on page 13 of the document that I gave you, the Triple Blackjack alternative. The odds of winning went from what the Commission had stated of 1 in 3.51 with the break-even prize to 1 in 4.24. We're just presenting that as an alternative. One -- so gosh, we don't want to tell the Commission what to do. COMMISSIONER SADBERRY: Well, I didn't ask -- I just asked what your preference, because to me, I'm not hearing you say that when asked, the Commission does not reveal how it terms winner. It's just that maybe it doesn't jump out to everybody who hasn't taken the time. And one thing I'll tell you is, when the lottery rules were being considered for change in Lotto, I, along with the other Commissioners, attended some town hall meetings for public input. And I have to tell you, I was impressed with the degree to which the players who would show up at these open forums had, in fact, studied a lot of things that I may have thought before those forums had not been the case. So I don't know. I can't respond to the depth to which anyone has taken -- undertaken a study like you and your students have. But I guess what I'm hearing is, you're saying that while winning, a winner is not concealed by the Lottery Commission how it calculates it or how it terms it. It doesn't jump off the page of whatever you're looking at -- MR. BUSALD: Certainly not. COMMISSIONER SADBERRY: -- to your satisfaction. And from the anecdotal empirical data you've accumulated in your vicinity, you believe there are others who feel the same way? MR. BUSALD: Absolutely. COMMISSIONER SADBERRY: And you are asking, then, that this Commission do what? MR. BUSALD: Give some direction to staff as how they should approach -- how they should approach this issue. Should they eliminate the break -- we are certainly not suggesting that that's what you need tell them. If we would include the statement that we suggested on advertising, I don't think it's a very painful statement to add. There certainly are lots of disclaimers on all these things about, must be 18 to play. To add this statement would be truthful and would be without the result of having to change the scheme of any games. That was -- Really, once again, that's a staff decision. But I really think we need to do one or the other. Either eliminate the break-even prize -- incidentally, there is a -- I was told by someone connected with the Commission that the Commission has even considered a scratch-off where there is a prize that's less than the purchase point of the ticket, which makes sense even for a Christmas ticket or something like that. I mean, I don't want to give someone a scratch-off ticket for Christmas, and then find out they really didn't get anything. I'd like to know, hey, you know what? They're going to get at least two dollars or whatever. Do you call that person a winner, is the issue. Yes, they got a prize. Are they a winner? That's a difference, because you could have a game where you have a hundred percent chance of winning a prize that's less than the purchase point. Did I answer your question, sir? I'm sorry. COMMISSIONER SADBERRY: You addressed it. And that's all I really wanted. I'm pleased with the fact that you addressed it. I'm not sure that's an answer because I don't know where you put the break-even prize. It's not a loser. MR. BUSALD: No. And we -- and as we pointed out -- COMMISSIONER SADBERRY: On a mathematically -- MR. BUSALD: Yeah. And I -- and I realize the Commission cannot put on advertising statements, overall odds of not losing. I mean, I realize that's a negative statement that the Commission would not want to put out in front of the public. Here is your odds of not losing. Obviously you can't do that. We suggested an alternative that we feel is a lot less painful and -- just by saying you're including the break-even prize in those odds. COMMISSIONER SADBERRY: Well, I guess my final comment, at least at this point, is, I would personally adopt in my service on this agency, board, Commission, the concepts that our chairman articulated. Although I have not been in business, I've been in private industry from a professional standpoint. Those standards are mine as well. And I would go further to say that I appreciate your pointing out your perception of the pressure aspects of staff operation. I'm not aware of that. And I don't believe that's as a result of having our head in the sand. I would certainly want to know if that's the case, if there is something like that that is operating that we're not aware of. I think we're all operating to do what is best. And that requires a balancing. And I would not endorse or support the scales of that balancing to be tipped in the direction of anybody doing anything that in any way infringes their concept of ethics or any other personal set of principles. I think you certainly are commended and free to speak to your perception of it. But I just have to say I'm not aware of it, factually speaking. MR. BUSALD: Well, I guess the reason we mention that is, obviously it's difficult to break away from an industry standard. But the Lottery Commission has -- not the Lottery Commission. Lotteries in general have been criticized heavily, even in the Congress of the United States, for advertising practices, because the states are in a sense self-regulatory in this aspect. And some states do a much better job than others. And I believe Texas has done a commendable job in wanting to have truth in advertising. So when we pointed out this truth, it seems to me the logical thing is to point it out to the players that this is the truth. We're after the truth. And we really don't believe the truth ever hurts. It's the best option. CHAIR CLOWE: Well, you're in the right forum. As I explained to your students, the responsibility of these three commissioners is oversight. And it is to guide and direct the policy of this Commission. So you've come to the right place. And I think that your thoughts are very interesting. If my take on your thinking is correct, there is not a mathematical issue here at all. MR. BUSALD: Not really, no, sir. CHAIR CLOWE: It's a matter of disclosure or interpretation, definition. And it stems from whether breaking even on a purchase of an instant scratch-off ticket is breaking even as you view it or being a prize winner as the Commission has adopted that position in the past. MR. BUSALD: The only thing I might wonder about that is that it doesn't say winning a prize. It says of winning. So even that -- the word prize is not in the advertising. CHAIR CLOWE: Okay. But that's where we are with your position? MR. BUSALD: Yes. It's not really a mathematical issue. It is because we looked at it and discovered it in doing mathematics. But it's not really -- I mean, certainly we know the Commission can do mathematics. So it's not -- you know, even though sometimes we have thought that someone who was a mathematician being on staff might be helpful, just from the errors we've seen come out that I've pointed out on the first page and from our previous dealings with all the other errors we have pointed out over time. But no, it's not a mathematical issue, really. CHAIR CLOWE: Good. I understand where you are, then. Now, is there anyone else among the students who wishes to address the Commission at this point? I have appearance forms from others. Come forward, please. The way this goes is, you state for the record what your name is. And then you're free to make your statement. MR. WHITNEY: My name is Chris Whitney. I think there should be some sort of action on the Lottery advertisement promotions, and especially including the print media criteria. I totally agree with what Professor Busald has stated earlier about, first of all, the integrity of advertisement. Throughout history, as we all know, the English language has changed. Words that people have used in the past cannot be used today simply because their meanings have changed. Math, however, is static. It doesn't change. Two plus two will always equal four. So in advertisement, the wording is very important. And I would strongly suggest that the consensus of the population generally in the areas of the central southern part of the United States, specifically in Texas, would say that a winner is someone who gains something, not someone who breaks even. And I could probably get any sort of English professor to agree with that. Not only that, I think it's important that this issue is to -- actually, that's all I have to say on that point. I do have another point, however, I would like to make. But first of all, do you agree with me on the fact that English is dynamic, Commissioners? CHAIR CLOWE: I do. COMMISSIONER WHITAKER: I would probably also say mathematics tends to shift, depending on the particular system you're using. But anyway, as long as we're going to be specific. COMMISSIONER SADBERRY: I would also say it's cultural. It's regional. There is a lot of things, if you want to include all that in being dynamic. COMMISSIONER WHITAKER: But yes, I would agree with your general statement. MR. WHITNEY: The law of sampling states that if you sample at least a thousand people, then it should come out to a very confident result. I would say that as a whole, our class has sampled at least a thousand people throughout the area. And that sample would say that the majority would say winning is when you gain something. Like, I have an analogy to make here. COMMISSIONER SADBERRY: I'm sorry. Winning is what? I didn't hear you. MR. WHITNEY: The majority of people I would say that we have sampled throughout the population would say that winning is when someone gains something and not when they break even. And I have an analogy to make. Hypothetically if, say, the Dallas Cowboys went to the Super Bowl against the Houston Oilers -- and I have to be hypothetical here because the Oilers aren't around anymore. But -- and that they ended up with a score -- okay. The time ran out. The score is 50-50. Would they both be winners? COMMISSIONER SADBERRY: There are instances, as an example, in the college setting where before you had playoffs -- and I'm not sure how that's going to work. But there were co-champions. I suppose the Longhorns, back in my day, I would suppose hopefully they would consider themselves both winners. But I understand the point you're making is gaining a competitive advantage if that's the definition of winning. That's why you have playoffs, because a tie game doesn't produce a winner. So it depends, again, on perception. And I take what you're getting at is the right perception of winning in this context being projected. Did you get more money than you spent, is what I think your group is saying ought to be the context in which we're talking about winning. And that's what you believe is not being conveyed accurately or adequately to the playing public. So I understand what you're saying. CHAIR CLOWE: Let me help you in understanding this process, if I am understanding the point of your question and the point of Ms. Cunningham's question earlier. This Commission has to hear all sides of this issue. And by trying to ask a question that commits the Commission to an answer and a position at this stage will not, I think, be successful to get you what you want. I'm trying to give you a little advice now. What you want to do, in my opinion, is present your position. Best possible case. Most detailed and correct. And then the Commission, having heard your position, has to hear other positions which may be beyond the staff. May be other players. May be from sources that are numerous and varying. So if you're driving in your presentation - I'm coaching you, too, now a little bit - in trying to get the Commission to say, yeah, you're right, we agree with you, I don't think you're going to be successful at this point in time. But that should not dissuade you from trying to make your position well understood and known to the Commission. Is that helpful to you? MR. WHITNEY: Yes. And before I respond on that, I'd like to respond to Mr. Sadberry's comment. I'd like to add on to that. Although if you -- if someone was to buy a lottery ticket and they broke even, quote-unquote, we also have to consider the fact that they spent time to go down there to buy the ticket, the effort that they made to do it. COMMISSIONER SADBERRY: So you could add in gasoline. You could add in interest on the money invested. You bought a thousand tickets. You want to win enough in prizes that I guess your thousand dollars plus interest plus inconvenience and a number of things. I am like Mr. Clowe. I understand your point. I think we all do. It might be a little more difficult, though, for us to sign off and say that we endorse what you say in that sense. We are hearing your message. We are glad you're bringing your message. We encourage you to bring your message. And I think we're getting the message. But I don't think we at this point sign off to a bottom line conclusion by answering specific questions that are conceptual in nature. MR. WHITNEY: Mr. Clowe, you have a very good point on what you made. It's hard for me to argue to everyone here specifically my point of view. And I understand that everyone here has a different point of view. I can't say that my point of view is the truth because I'm not all knowing. But I do know that we have some very detailed research on this. And it's very convincing. And there is a large amount of people who will agree with this consensus. And that's all I'd like to make on that point before I go to my other point. CHAIR CLOWE: I beg your pardon? MR. WHITNEY: That's all I have to say until I seek my other point. CHAIR CLOWE: I thought you said you had another point. Go right ahead. MR. WHITNEY: Okay. I just -- I have -- I want to start my next point with a question, a direct question. I was looking through the financial information here. And I noticed that a large amount of money is what they call earnings for the state. And then I was looking at this advertisement that says that 31 cents of the dollar goes towards the Foundation School Fund. What exactly is this funding and earnings in the state used for? CHAIR CLOWE: We'll give you a detailed answer on that if you'll just stick around for the executive director's report. She reports every month on that money and where it goes. And why don't you just, when you're finished with your presentation, hold on for her report. And you will get that information. As a matter of fact, we'll give you a copy of that if you'd like. MR. WHITNEY: That sounds good. Also, I was looking through the -- looks to me to be the rules of the Texas Lottery, chapter 466.021, demographic studies. It says -- states here: The executive director shall every two years employ an independent firm experienced in demographic analysis to make a demographic study of lottery players. The study must include income, age, sex, education, and frequency of participation of players. When the marketing representative -- her name escapes me right now. CHAIR CLOWE: Toni Smith. MR. WHITNEY: Yeah. She came to the school and she gave us a presentation. And I asked her if she had any demographic information. And she couldn't answer the question at the time. But she did -- and I do thank her for this. She sent us some information about the demographics. And I'm concerned to whether the majority of people who buy the tickets are of a low income and educational level and whether or not the funding to which that the State gets is used towards economical expansion that benefits the -- someone who falls within that bracket or someone who falls in a higher bracket, or should I say a higher income level bracket. CHAIR CLOWE: I think probably what she gave you is this report. Is this familiar to you? MS. CLOUD: Commissioners, that's -- I believe that's not the demographic study, I don't think. We're in the process right now -- UT conducts that study for us. CHAIR CLOWE: It's not in the retail survey of the players? MS. CLOUD: No, it is not. And -- CHAIR CLOWE: What did Toni give the class? MS. SMITH: It was the most current demographic study, which is just going on two years old. CHAIR CLOWE: And how current was it? MS. CLOUD: It was two years ago. We have to do one -- MS. SMITH: We're in the process now. MS. CLOUD: We have to do a study prior to the legislative session. And it has to be presented to the legislation. COMMISSIONER SADBERRY: Let me say on that -- and that's a good point to raise. I'm glad you are interested in that. Just like we have certain duties and authority with respect to how this agency runs, our boss is the legislature members. They tell us what to do in that sense. And part of what they did when they created this agency -- the Lottery itself existed before this particular State agency was created. So when this State agency was created, we took over lottery. And we took bingo, as you've heard a lot about this morning. And part of what the legislature did on the lottery side is to require these studies to be conducted. Now, this data which we are required to provide to the legislature, what -- we pass it on. And then it's up to them. If the data they receive means something in the sense of, something needs to be done here, why -- and I can -- I'll tell you this. Going from memory -- and I can understand why Toni Smith may not have it from memory, because she probably wasn't put on notice of your question. But she did follow up with the most current data we have. But my memory is that the numbers that shook out of that report were very encouraging that what you are concerned about is not happening. Now, that's a succinct, bottom line type of conclusion. And I will be corrected, I'm sure, if I'm wrong. But that's my recollection of it. But it may change. So we have to keep doing it. Now, if the legislature sees that there is a problem here, then they have the chance to say things to us like, we don't think you ought to advertise this way. We don't think you should advertise this component. Or, your advertising should change. And I can tell you things like that have happened. That's why you don't see Scratch Man anymore. The legislature thought that there was a problem with scratch man. Not what we thought. It was their perception. And they get to make that call. So if there are issues in this type of arena of demographics, that information gets to the leaders of our state. And they get to tell us if there is a problem that we need to address. That's kind of the checks and balances that go on here. And you're right to raise it. And I'm glad you do, because I -- the more that's known about information we get and where it goes, what's done with it and about it, the better. That's -- again, our job is -- public input, public trust, public perception are paramount. I would like to underscore the Chair's comment that we get to do this work gratuitously. And I don't make any point of that, other than to say you -- we have to believe in what we're doing. We have to think that or we would not be doing it. We're not perfect and we're not perfect types. And that's why we gain and benefit from public input. It gives us feedback on how we're doing our jobs. CHAIR CLOWE: There was a second part of your question about where the money goes as far as economic groups or demographic groups. MR. WHITNEY: Yes. Before I answer that, I want to say that this question was for myself. I'm not speaking on behalf of everyone else. CHAIR CLOWE: Sure. MR. WHITNEY: That way, they don't feel somewhat responsible just in case if I say something wrong. COMMISSIONER WHITAKER: They were looking at you. CHAIR CLOWE: You didn't understand that the proceeds go into the Foundation School Fund? You didn't cover that when Toni and Larry King were there? MR. WHITNEY: Yes. That was what I was concerned about, because I had asked her about what schools benefit from this. CHAIR CLOWE: Do you understand we don't control that? MR. WHITNEY: I don't know. See, that's what I'm trying to figure out, who controls it or -- MS. CLOUD: The Foundation School Fund has control of the money. It's where they designate the money to go. COMMISSIONER SADBERRY: But I think the question is: Who decides where we get -- where we send it. MS. CLOUD: Right. COMMISSIONER SADBERRY: We don't decide that. The legislature decides that. At first it went into the general treasury, if you will. But I'm sure that's not the right phraseology. The general -- MS. CLOUD: Revenue fund. COMMISSIONER SADBERRY: -- revenue fund. The general -- just like your general bank account. And then the legislature decided to make it specific. But that's their call. And we don't have no say over that. We report as asked where it goes. But we don't decide where it goes. MR. WHITNEY: Okay. CHAIR CLOWE: I think -- go ahead. MR. WHITNEY: I have no more comments to make. CHAIR CLOWE: Okay. Thank you very much. I think Professor Busald is trying to be respectful of others in their needs to have some time. And I'll ask each of you students who want to address the Commission to be that respectful as well. And keep in mind we have to hear the other side of this issue from the staff and those other interested parties. And we do want to leave here tonight. So I didn't bring my pajamas. COMMISSIONER SADBERRY: I thought I was going to call and ask him to up my ticket because I think I'm going to have to push them back. CHAIR CLOWE: But we do want to give you time. And we're not trying to hurry you. Go right ahead. Who are you, now, please? MS. BROTHERMAN: I am Kristin Brotherman. CHAIR CLOWE: Good. MS. BROTHERMAN: Commissioner, before you made that comment, I was going to tell you that, don't worry. I'll make this short. I know it's near lunchtime. And I won't ask any questions. CHAIR CLOWE: Kristin, you came a long way from San Antonio. So we're glad you're here. MS. BROTHERMAN: Well, thank you. I'm glad to be here. And you're right, Mr. Chairman. I've never done this before, so I'm a little nervous. All right. For the brief time I was able to make the presentation Ms. Smith made -- I had some classes. But I was able to make some of it. And I know this is hearsay. But I remember her saying something to the effect that the Commission knows that if people see a higher ratio of 1 to 5, you know, on the back of the scratch tickets, it doesn't look that great. And personally -- and even though Professor Busald said even if we take out the break-even prize winners, it doesn't really affect the ratio that much. But even if it was to like, let's say, raise it to one out of every 20, the Lotto is fun. It's a game. It's just like if I was to go to a casino -- which I can't do for another three months anyway. But if I was to go to a casino, I pretty much know I'm not going to win because I'm not, you know, much of a gambler. And -- but it's fun, you know. Even though I know I'm going to lose quite a bit of money, it's fun. And I personally would still play the Lotto. I just want to know what I'm playing. I want to know the truth. And I also quizzed my family, my friends. Even as late as yesterday I was asking some of my friends. And I just got, how can they -- how can they consider this? I didn't know this. And that's what we're saying. They just don't know. And I was thinking that another point I have is about businessmen or women. Businesses must respect their clients. At first I was thinking, what's a good business? Car salesman. Well, that's not a really good -- I didn't think that would be a good example. But for instance, a lawyer. I know we have a lawyer in the house. He must be completely honest and respect his client. And in my opinion, I am and my peers and my family, when they buy a Lotto ticket, they are the Lottery's clients. And all that we ask is for the truth and for the same respect that we give you. And that's just simply what we are asking, is for the truth. And I do agree that it would be a wonderful opportunity for Texas to start a trend in honesty, especially if we're about to have a president from Texas. I just -- I just think that we're about to be in the limelight quite a bit. I think it would be a great opportunity. And thank you for your time. CHAIR CLOWE: Very good. Thank you very much. Who would like to speak next? MR. BUSALD: I think we've run out of brave souls. CHAIR CLOWE: Well, they did a wonderful job. And I really thank all of you for coming and expressing your views. Now you get to hear the other side. COMMISSIONER SADBERRY: May I ask a question? CHAIR CLOWE: Sure. COMMISSIONER SADBERRY: Professor, you have made a point of winning and winning prizes. And you've made a distinction that the advertising didn't include prizes in the representation of winning. Now, a simplification. I just wanted to make sure, though, that as a general concept, that's what I understood you to say. MR. BUSALD: Yes. If you look at one of the game flyers, it just simply says overall odds of winning. It doesn't say overall odd of winning a prize overall. It just says winning. COMMISSIONER SADBERRY: I just wanted to -- MR. BUSALD: Yeah. And it's semantics. We realize that. And we're sympathetic to the position that this puts staff in of how you're going to do this. But I think, you know, if we do it the positive way, it -- I think it will impress players, frankly. And I could be nuts. Who knows? But -- COMMISSIONER SADBERRY: I didn't mean to step on any of your comments. I apologize. I just wanted to come back to sort of Commissioner Whitaker's observation about the one dollar prize. I'm seeing on the materials you presented quite a number of places where prizes is, in fact, included as part of the winning, on page 15 and in a number of other places. To the extent that makes a difference -- I don't know that it does or not. I don't -- I don't water down your concerns at all. I just wanted to point that out. MR. BUSALD: There is an implication that a dollar -- if you get your dollar back, it's a prize because it's listed under prizes. You're asking a player, including a bum, to realize that, from Nicole's testimony. So I -- you know, it's kind of -- you know, I don't know how to deal with the issue. I really don't. We're just here to make some suggestions and point out concerns. COMMISSIONER SADBERRY: I'm through. CHAIR CLOWE: Thank you, sir. Now, I introduced earlier to you the executive director of the Commission. And the Commission is going to call on her to give the staff and her viewpoints about the issues that you've raised. So you get to hear how someone else feels about the issue that you've been talking to us about. MS. CLOUD: Toni, I'd like for you to come up, if you don't mind. First of all, I'd like for Toni to explain a little bit of -- and I think she probably did to the class, about how the prize pools are actually created. How we sit down and we look at the amount of money we've got to put into a prize pool and how that is divided out. And I would like to -- before Toni does that, I would like to comment on the press release that Mr. Busald brought up on October 21st on the item on Cash 5. And I do agree with him that is totally erroneous. It should not have been in this press release. It -- what happened, apparently someone in communications went back into the archive and didn't catch the number being incorrect. I will take that up with Keith when he gets back. CHAIR CLOWE: So that is an error. And it is needing to be corrected in the way of a retraction or a corrected statement. MS. CLOUD: We can -- we can certainly do that, yes. CHAIR CLOWE: Okay. Good. MS. CLOUD: And I appreciate that being brought to our attention. CHAIR CLOWE: And although someone in communication, we take responsibility. MS. CLOUD: We take the responsibility. I probably did not view the press release before it went out. It was on the Web, though. And I do read them once they get out there. I didn't catch it, either. So that is a -- and on the -- I just want to emphasize to my Commission, as well as to this class, that it's never been the intent of this Lottery Commission to deceive anybody. That is not what we do when we put the odds of winning in these games. And that's why I want Toni to give a brief overview of how the game structure is actually developed. MS. SMITH: Well, without taking all day, because I don't have my pajamas, either, the prize structure is basically a mathematical formula that helps you determine the prize levels and what percentage of that total prize pool goes out in each of those levels. For example, you would take into consideration if it was a print run of 20 million tickets at a 60 percent payout, meaning 60 cents on every dollar of sales of tickets goes back to the players will be in that prize pool, then you would have $120 million in prizes in that game. So then it's up to us to make the best decision on how that money be distributed throughout that game at the different prize levels. And I would like to take a moment to thank Mr. Busald for having Larry and I come to his class, because we did talk through and had copies of different prize structures that the students could see and see how that worked. We look at what monies go into each of those levels for various reasons. So yes, we can control. There may be a bigger percentage of the lower tier prizes in one game. For example, a holiday game for gift giving, because you do want people -- if it's a gift, you'd hope that they would win a prize. And so sometimes the theme of the game determines, and that's more of a marketing than a math decision, how much money goes into each of those prize levels by percentages. And that's pretty much how it's put together. I guess one comment I'd like to make about if you -- as far as being truthful about the odds, there are dollars allocated for that low tier prize. If it's a one dollar ticket for the one dollar prize, you can't discount that. I mean, you -- it may be semantics of what you call it. But when I looked into the math side of it and the odds, those dollars are there. And I think it's just a question of what you call it. And I'm sorry if the students didn't feel satisfied with the explanation that day. They appeared to be and didn't have too many other questions. So hopefully we can address those if there are any others today. With regard to the demographic study, I did pull a copy. And I'll leave this for the Commissioners. We'll get some other copies. This is what I had sent Mr. Busald with regard to the income level of players. It states, what is the income level of Texas lottery players? Similar to education level, it is a myth that the lowest income levels are more likely to play lottery games. Again, this study shows that those with the lowest income level are least likely to play the Texas Lottery. These statistically significant results replicate the 1997 and 1995 studies. The most likely to play are those earning 20,000 and above, which represents 70 to 75 percent. And the average family income for this sampling was 37,000 -- $37,966. And I think we did talk about that day in the class that it skews higher income, which is a good thing. We don't want people to be misled to believe that we target lower income people in the games that we put out. And I guess in response to players rebelling about what they don't know, I do think our players are very savvy with regard to what they're winning. And if we were to, say, take that one dollar prize level on a one dollar ticket and put it into other prize pools, there would be fewer winners of anything in that game. And I think we found out with a reduction in our prize payout the effect that can have on sales. So we have to be very cognizant of that. With regard to industry issues, Texas has always been sort of independent in what we do. But we always follow what other states do. So we did a survey of other lotteries. And we surveyed California, Florida, Georgia, Massachusetts, New York, and Ohio. Four of those six lotteries currently offer free tickets as a part of their prize structure on instant games and actually factor those into their odds, which we don't do and wouldn't want to do here in Texas. So we feel like that, you know, we're not -- that, to us, maybe would be a different situation. All six of the lotteries have the lowest prize matching the prize of the ticket. None of the six offered a prize that was lower than the price of the ticket. And only one of the six -- it seems like it was one game in California offered two dollars on a one dollar ticket. And some of these lotteries, like Massachusetts, have been in place for 26 years. And so not that we follow industry standards, but we do look to see what others do. And if there were a general complaint by players all over the country about those lower prize levels, I think we here in Texas and those other states would have heard that and would have responded. COMMISSIONER WHITAKER: Toni, do you have reason to believe that the players know that the dollar prize is included in the odds calculation? MS. SMITH: I have no reason to believe that they don't believe that it's there. I do want to say, and I shared this with the class the other day, it's probably more of a marketing decision in how it works and why those are there. One, to keep the odds low. But there are other reasons why we want to have that. Now, we call that the churn. It also gives the retailer a sense of paying out some prizes, whatever the terminology we want to call those dollars that are coming and going back and forth. And that's a positive thing for them. And the other thing is that it gives the players another option to make that choice. So it keeps them in the game. If they feel lucky on one game or want to try a different game, it gives them the opportunity to give that dollar back. So in that sense, they could be a winner or not be a winner, depending on their thoughts about it. But from a mathematical standpoint, it definitely still is a -- money that was in that prize pool that's paid out to someone. MS. CLOUD: Commissioners, the -- what you see there, your selling sheets are posted on our Website. So players who have the ability to go to our Web, all the information is there as well. Also at the time a game -- new game goes to the retailer, the selling sheet goes with the game. So the retailers themselves have the selling sheets. Now, we can't -- we have 17,000 retailers. We can't be guaranteed they're posting it. But we do everything we know how to do to make that information -- everybody aware of what's in that game. It is not on the ticket. There is no room on the ticket to put all that information. COMMISSIONER SADBERRY: You anticipated one of my questions, which was, why don't you just simply get rid of the break-even ticket? Are you saying you have data from a marketing standpoint that that is not what the players want? MS. SMITH: I don't have data with regard to that. But I would have to -- I would be very concerned -- well, very concerned that as a result of -- when we had the prize payout reduction, there were fewer dollars to pay out. And we know what result that had on sales. That if we shifted the dollars around and there were fewer winners, it would depend on each player's opinion of whether they won something or not, you know. If they weren't winning as often, there is a certain psychological aspect of that for whether it's one dollar or two dollar. I don't know the benefits from a sales standpoint if you took every one dollar prize and put it into a two dollar prize level. There obviously would be fewer prizes overall in that game because you have affected the odds of winning. COMMISSIONER SADBERRY: Fewer payouts. MS. SMITH: Fewer winners. MS. CLOUD: The actual prizes. MS. SMITH: Prizes, winners of prizes. MS. CLOUD: Commissioners, I don't have -- I don't see a real problem with us making the prize point prize be -- just say it's a break-even prize and that it is part of the odds. I mean, that's what Professor Busald said that he, you know, would agree that we could do. And I don't see a problem with us doing that. If that will solve anybody's question about whether the Lottery is deceiving the public or not, then I would -- I would absolutely suggest that we do something like that. I have no problems with that. I don't want to take that prize level out. It is part -- we do want our players to win. And they -- I know for a fact a lot of players feel like they won if they got their money back rather than not getting any prize. But I am more than willing to say that the prize point prize is a break-even prize. And it is part of the odds. COMMISSIONER WHITAKER: And that was your point, Professor Busald? MR. BUSALD: Yes. COMMISSIONER WHITAKER: And it was not -- you're not taking the position that a dollar prize is not a good thing or that it should be eliminated? MR. BUSALD: That's an issue -- that's actually the Commission's decision. We don't -- COMMISSIONER WHITAKER: That's not your point? You're not here to complain about that? MR. BUSALD: No. COMMISSIONER WHITAKER: Okay. CHAIR CLOWE: I think we're ready to go to the next subject on the agenda. You won. Did you get that message? Sometimes it happens very quick and it's very slight. MS. CUNNINGHAM: We like her. MR. BUSALD: Thank you very much, Commissioners. We really appreciate your consideration. And Linda, also. We really want to work with the Lottery to help the -- I'm sorry. Thank you very much, Commissioners. And thank you, Linda. We really do want to work with the Lottery to help the Lottery. We don't want to damage. But we obviously had a difference of opinion on this issue. And we appreciate the chance to present our side and the Commissioners' willingness to listen. CHAIR CLOWE: You made a good case and well done. And we thank you again for coming. But remember, you won't always win. MR. BUSALD: We realize that. COMMISSIONER CLOWE: Sometimes you will break even.We have, I believe, reached a point where we're going to take a motion to go into executive session. COMMISSIONER WHITAKER: So moved. To read the San Antonio Express News story (Dec. 2000), click here. |
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The Lotto Report |
