Commission Meeting for 11/17/2016
 
Time, Date and Place:

The 203rd meeting of the Idaho Lottery Commission took place on Thursday, November 17, 2016 at 10:00 AM at 1199 Shoreline Lane, Boise, Idaho 83702.

Attendees:

Commissioners Present: Chairman, Mel Fisher

Commissioner, Gary Michael

Commissioner, Susan Kerrick

Commissioner, Craig Corbett

Commissioners Present

Commissioner, Grant Brackebusch

Via Teleconference:

Lottery Staff Present:

Executive Director, Jeffrey Anderson

Chief Operating Officer, Becky Schroeder

Deputy Director of Sales, Larry Polowski

Management Assistant, Jennifer QuinnoMiller

Chief Financial Officer, Jay Prickett

Public Information Specialist, David Workman

Deputy Director of Security, Amber French

Deputy Director of Marketing, Sherie MoodySt. Clair

Interactive Media Specialist, Austin Rogerson

Joe King, Product Manager

Tyna Saysiphaseut, Business Analyst

Others Present:

Zeke Chemodurow, Intralot

Ryan Belveal, International Gamco

Scott Henneman, Oasis Gaming/International Gamco

Scot Phillips, Eide Bailly

Brad Surkamer, CLM

Sean Athey, Scientific Games

Tim Davis, Deputy Attorney General

Colleen Rowan, IGT

Richard Wheeler, IGT

Jason Blakley, Givens Pursley

Billy Mitchell, Mitchell Palmer

Christos Tzoumaras, Intralot

Lynn Becker, Intralot

Jon Adams, International Gamco

1. Meeting Called to Order

Meeting was called to order by Chairman Fisher at 10:00 AM.

2. Approval of the Minutes

Commissioner Michael moved to approve the minutes of the September 15, 2016 Commission Meeting. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

3. Eide Bailly Audit Report

Scot Phillips with Eide Bailly presented the audit report. On September 15 Scot met with the Audit Committee, Chaired by Commissioner Michael, to reveiw the results and the accompanying documents. This year there are no new accounting standards and everything was status quo. There were no findings or adjustments. Scot indicated Eide Bailly gave a positive opinion on the Financial Statements and they believe the financial statements accurately reflect the financial position of the Lottery.

Commissioner Michael Moved to approve the Audit Report. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

4. Director Update

POST Certified Detective Position We have requested funding for a POST certified Detective position in the FY2018 budget request. The Lottery Security division is an integral part of maintaining the security and integrity of our Lottery operation. A few years ago, after researching crime levels and requirements of the division, we believed our Deputy Director for Security could maintain the duties of both the Deputy Director and the POST certified Detective, along with the support of an Investigative Assistant. Unfortunately, the incidence of fraud has increased significantly since this time and we found the Investigative Assistant did not possess the skills to offer support at appropriate levels. Furthermore, the Investigative Assistant did not posess the statutory authority for follow cases from start to finish. That employee has since left the Lottery as well and we are now left with only one person with law enforcement authority in that department, which is our Deputy Director, Amber French. This has become somewhat of an issue because the number of cases we have to deal with have increased over the last couple of years. We intend to hire this position early if possible and are hoping to post the position in March if we get approval from the Joint FinanceAppropriations Committee (JFAC). This is important for two reasons. First, because the increased case load requiring law enforcement authority and experience andsecond, Amber will be retiring in 2019 and we need a succession plan with someone in place in time to work with her to completely understand the Lottery industry and our business processes.

Charitable Gaming Legislation

During the 2016 Legislative session, we put forward legislation to clean up language in the Charitable Gaming Statutes. We have been getting feedback from Charitable Gaming licenses that the language is hard to follow and we are going to continue to do more work on the language and perhaps submit the changes in the 2018 session, rather than this year.

5. Action Items

Building Lease

The current location of our headquarters building is ideal in that it is in the downtown core, our players know where it is, and the location offers free parking. Our building lease expires December 31, 2017. We initiated conversations with the building owners in September of 2015 to provide time for us to have conversations with them about extending the lease or going out to bid for a new location. After numerous discussions about rates and space, we asked for some significant tenant improvements to our space in order for us to consider staying. The landlord wasn’t interested in considering the tenant improvements unless we could commit a longterm, 10year lease. We received preliminary approval from the Division of Public Works to consider a 10 year lease. In May 2016 the landlord agreed in principle with the things we wanted them to do for us and it has been very favorable for us. We are planning to give up 1700 square feet of space where Security is currently located, Security will move over to where Administration is now and Administration will move downstairs to join everyone else. This will allow for more efficient work flow and communication. Our lease rate will be reduced $.63 cents per square foot which brings us right in line with the rate the Board of Pharmacy is paying in our building. The overall costs for the lease will drop by over $40,000 per year in addition to roughly $6,000 in electrical cost savings. The tenant improvements are being paid entirely by the landlord with the exception for some wiring that we will complete as a part of the tenant improvements.

Commissioner Michael moved to approve a new 10year building lease. Commissioner Corbett seconded the motion. The vote was unanimous for approval.

CLM Contract Extension

Director Anderson requested approval from the Commission to extend the CLM contract for Media Services. In 2012 we split our marketing services into three separate contracts: Media, Strategy and Creative. CLM won the Media contract at that time and we have already extended that contract once. We are now asking for a new, oneyear extension for calendar year 2017 at the same terms and conditions we have now.

Commissioner Corbett moved to approve a new oneyear contract with CLM with the same terms and conditions as the current contract beginning January 1, 2017. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

IGT Printing Contract Extension

We entered into a contract with IGT printing in 2013 that has since been amended and extended to March of 2017. The contract allows for a twoyear extension to 2019. IGT has 70% of our printing business and has done a fine job for us. We appreciate our relationship with them and we wish to exercise the extension option with the same terms and conditions to March 2019.

Commissioner Michael moved to approve a two year extension with IGT Printing to run from March 2017 to March 2019 under the same terms and conditions as the current contract. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

Pollard Contract Extension

Pollard Banknote prints the other 30% of our tickets and their contract began in May 2013 with one extension already executed. Pollard has done a fine job for us and we appreciate our relationship with them. We are asking for a two year extension with them, under the same terms and conditions for May 2017 to May 2019.

Commissioner Michael moved to approve a two year contract extension for Pollard Banknote under the same terms and conditions from May 2017 to May 2019. Commissioner Corbett seconded the motion. The vote was unanimous for approval.

Gamco Contract Extension

We have a current contract with International Gamco that runs through June 30, 2017. At the July 2016 Commission meeting we requested approval to extend the contract to June 30, 2018. The Commission approved that change. The primary reason was that we were out to bid for a new gaming system and we weren’t sure which direction that would go. The current contract does have a second one year extension option that we would like to execute now that we know more about the Gaming System RFP. There are still many details to iron out and discussions to be had with Gamco, but we are asking today for permission to begin negotiations with Gamco regarding that second one year extension which would extend it to June 30, 2019.

Commissioner Corbett moved to approve the intent to negotiate for the Gamco contract extension to June 30, 2019. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

Gaming System Recommendation

GTECH, now IGT, provided the Lottery gaming system services from the inception of the Lottery in 1989 until 2007. Intralot has provided Lottery gaming system services since 2007 through a contract that terminates September 30, 2017. In September 2015, the Lottery issued a Request for Information for the gaming system and four vendors responded, Intralot, IGT, Scientific Games and Novomatic, with each making presentations to the Lottery in October and November of 2015. The Lottery Commission subsequently issued a Request for Proposal for gaming system services in June 2016 for a new contract that will commence on October 1, 2017. The Lottery received letters of intent to bid from the three vendors who currently provide these services in the United States; IGT, Intralot and Scientific Games. The RFP was amended on July 18 and again on August 15 for clarity based on input from the vendors. Three bids from IGT, Intralot and Scientific Games were received on September 9. Technical evaluations began immediately including site visits to other jurisdictions recommended by the bidding vendors. Price proposals were not opened until the technical evaluation of mandatory items was completed. A recommendation was made to the Director this week by the evaluation team after a 4 ½ month open bidding process.

There were two components to scoring the proposals, one for Technical points and one for Price. For the technical scoring, there were a total of 2140 points possible, if a vendor got the maximum score on each item. Those were then converted to a 670 point scale and the pricing used a scale of 330 points. The vendor with the highest technical score got the full 670 points and the vendor with the best price proposal would get all 330 points. For technical scoring, IGT had a technical score of 1761 and received all 670 technical points. Scientific Games had a total technical score of 1718 and received 653.65 points and Intralot had a technical score of 1717 and received 653.25 points.

Intralot had the best price proposal and received all 330 points available for price, with a ten year bid of just under $60 million. Scientific Games had the second best bid of just over $76 million and received 259.31 points, and IGT bid just under $80 million and received 247.57 points.

The bidder with the highest total score, with 983.25 points, is Intralot. IGT was second with 917.57 total points and Scientific Games was third with 912.96 total points. Intralot is recommended as the apparent successful vendor for a ten year contract to provide lottery gaming system services for the Idaho Lottery. The contract provides for two fiveyear extensions beyond the initial ten year term that begins October 1, 2017. The goal is to begin contract negotiations and have a final contract before the end of the year or sooner so we can begin the conversion process.

Director Anderson asked the Commission’s approval for Intralot as the apparent successful vendor subject to successful contract negotiations.

Commissioner Kerrick moved to approve the recommendation of Intralot being named the successful bidder and authority to move into contract negotiations. The motion was seconded by Commissioner Corbett. The vote was unanimous for approval

6. Quarterly Current Sales Report

The Quarterly Current Sales Report is entered into the minutes as an attachment.

7. Security Division Update

There was no Security update.

8. Marketing Division Update

Deputy Director MoodySt. Clair provided an update from the Marketing Department. She reviewed the current Raffle game and was very optimistic about its performance and hopeful for a quick sellout. She also introduced a new miniRaffle that is coming in March and reported that Holiday tickets are out and we are ahead of sales for Holiday games over last year.

9. Sales Division Update

Deputy Director Larry Polowski just returned from the northern part of the State where he spent time with the Sales Reps there and meeting with retailers. He described a new Retailer Initiative program put together in conjunction with CLM that is launching around the state with about ten retailers to try and get an idea from each of them what it is the Lottery can do for them to increase sales. So far the response has been good and we expect it will be a successful program.

10. Set Future Commission Meeting Date

Commissioner Michael moved that the next Commission Meeting be set for January 19, 2016 at 10:00 AM in Boise. Commissioner Kerrick seconded the motion. The vote was unanimous for approval.

10. Adjournment

Commissioner Kerrick moved to adjourn. Commissioner Michael seconded the motion. The vote was unanimous to adjourn.

Certification:

I hereby certify that the foregoing minutes are a true and correct record of the actions and decisions made by the Lottery Commission.

Jeffrey R. Anderson, Executive Director

Lottery Commission Secretary