BusinessPlan

Fiscal Years 2005 – 2007

Comprehensive

COMPREHENSIVE BUSINESS PLAN

Fiscal Years 2005 – 2007

Texas Lottery Commission

TEXAS LOTTERY COMMISSION

Comprehensive Business Plan

Fiscal Years 2005 – 2007

FOREWORD

This document, the Texas Lottery Commission Comprehensive Business Plan for fiscal years 2005 –

2007, was prepared by the management of the agency, inclusive of all divisions within the agency

including, but not limited to, the Lottery Operations Division and the Charitable Bingo Operations

Division. This report has been prepared as a result of and in accordance with recommendations

contained in the Sunset Advisory Commission Staff Report issued in August 2002 and restated in

the Sunset Advisory Commission Staff Report issued in April 2004 (detailed below).

3.2 Require the agency to develop a comprehensive business plan.

The Lottery Commission’s major initiatives should be guided by a comprehensive busi-

ness plan to ensure their cost effectiveness. The business plan should include a specific

description of each program, key management information, accurate financial data, and a

detailed financial management plan. The Commission should review the business plan at

least annually to assess the overall performance and value of each project. Projects that

fail to meet financial objectives should be adjusted or terminated. This recommendation

will build on recent efforts by the agency and ensure that business planning continues in

the future.

Throughout this document, the term “Texas Lottery Commission” (TLC) is used in reference to the

entire agency. The terms “Lottery” and “Charitable Bingo” refer to the two very different and distinct

functions of the agency and are mainly used where an element of this plan is only relevant to one

function or the other. There are significant differences between Lottery and Charitable Bingo opera-

tions. Most importantly, the Lottery is charged with generating revenue for the State of Texas while

regulating those locations licensed to sell the Games of Texas, whereas Charitable Bingo is charged

with licensing and regulating an industry that generates revenues for nonprofit organizations in

Texas. This is an important distinction that statutorily limits Charitable Bingo from adopting strate-

gies and action plans that would promote consumer participation in bingo playing.

TABLE OF CONTENTS

I. Executive Summary .................................................................................................................1

II. Overview of the Texas Lottery Commission ..........................................................................4

1. History..................................................................................................................................4

2. Management and Organizational Structure...........................................................................5

3. Vision, Mission and Core Values...........................................................................................6

III. Market Analysis.......................................................................................................................7

1. General Environment............................................................................................................7

2. Markets and Demographics .................................................................................................8

3. Products................................................................................................................................9

4. Competition .......................................................................................................................10

IV. Financial Overview................................................................................................................10

1. Management View – Lottery Operations ............................................................................10

2. Transparent View – Lottery Operations ..............................................................................11

3. Charitable Bingo.................................................................................................................12

V. Business Plan Framework .....................................................................................................13

VI. Objectives ..............................................................................................................................14

VII. Strategies and Action Plans.................................................................................................15

TEXAS LOTTERY COMMISSION

Comprehensive Business Plan

Fiscal Years 2005 – 2007

I. EXECUTIVE SUMMARY

One billion dollars. For a decade, the State of Texas has offered to its citizens fun, convenient, secure

and legal gaming choices through the Texas Lottery while generating average annual contributions near-

ing one billion dollars to the Foundation School Fund. In an era where the subject of financing public

education is a key issue for the citizens of Texas, one billion dollars can have a profound impact.

22.8 million.

This was the attendance at licensed charitable bingo events in 2003, more than 2.5 times

the combined attendance of Texas’ major league baseball, football, basketball and hockey teams.

While

enjoying the excitement and social aspects of the games, Texans contributed $29.7 million to Texas chari-

ties and $15.1 million to the State’s General Revenue Fund.

In North America, only Ontario and

Indiana enjoy the benefits of a larger charitable bingo industry than Texas.

The Texas Lottery Commission (TLC), as a state agency, strives to be a careful steward of the resources it

is provided to carry out its mission. While Charitable Bingo Operations is appropriated like most other

state agencies, the TLC must produce its own operating resources and deliver the expected annual rev-

enue to the State. Combining the performance expectations of a for-profit business with the fiscal

accountability of a government agency presents unique challenges for agency management. Add to the

mix the dynamics of a gaming and entertainment industry with aggressive for-profit competition, preva-

lent illegal substitutes, emerging technological advances and a public constituency that is generally

unaware of the true beneficiaries of its operations, and one can begin to appreciate the difficult environ-

ment within which the TLC must operate to deliver the expected profits for the Foundation School

Fund and the expected services for Texas charities.

These unique challenges underscore the need for the TLC to venture beyond the State’s standard strate-

gic planning process and develop a Comprehensive Business Plan with a three-year horizon. This written

plan represents the tangible expression of process that involved the TLC’s management team and a team

of consultants led by Dr. Gary M. Cadenhead, a senior lecturer at the Red McCombs School of Business

at The University of Texas at Austin. It is designed to complement, not replicate or replace, other plan-

ning documents produced by TLC’s management.

TLC Agency Strategic Plan: For Fiscal Years 2005 – 2009 Period, p. 39.

Accordance to attendance figures published on http://sports.espn.go.com, the combined attendance for Texas' eight major

professional sports teams was 8.5 million in the 2003 and/or 2003 – 04 seasons.

TLC Agency Strategic Plan: For Fiscal Years 2005 – 2009 Period, p. 38.

bid., p

. 36.

Texas Lottery Commission

The development process for the business plan began with an overview of the TLC’s history, organiza-

tional structure, mission, vision and core values, followed by a high-level market analysis and financial

review. A “fresh look” yielded the perspective that virtually all key operating activities within the TLC

can be categorized within five areas:

1. Compliance – activities that ensure that agency rules and laws established by the Legislature are

followed;

2. Trust – activities that safeguard the integrity of the games and ensure proper stewardship of resources;

3. Contributions and Charitable Proceeds – activities that maximize the financial benefits to the

Foundation School Fund and Texas charities that operate bingo games as fundraisers;

4. Communications – activities that share information and promote understanding about the TLC’s

purpose, operating activities and use of resources; and

5. People – activities that enable the TLC to attract, retain, motivate and develop the quality human

capital upon which the State depends.

With the framework established, the TLC’s management developed and articulated four objectives, eight

strategies and 23 action plans that will guide its resource allocation decisions and help it achieve a “preferred

future” by 2007. The TLC will dedicate resources toward the goals established in the objectives, strategies

and action plans developed during the business planning process. The TLC will benchmark its performance

by evaluating the success of individual action plans in meeting stated objectives in the next three years.

Strategy #1 – Implement policies and

ocesses that identify and mitigate risk to

the TLC.

trateg

y #2 –

mplement a “

transparent

operations” strategy.

Action Plan #1 – Develop business continuity planning for potential

business-disr

upting ev

ents.

Action Plan #2 – Implement an internal vendor monitoring program to

identify potential financial or reputation risks for business disrup-

tion.

Action Plan #3 – Assess cost/benefit of voluntarily adopting private-sec-

tor corporate go

ernance best practices.

Action Plan #4 – Develop an independent process for reviewing and

reporting accusations of inappropriate activity.

ction P

lan #5 –

omote a “

wher

e the money goes” public awareness

campaign.

Action Plan #6 – Develop a Bingo Annual Report that shares opera-

tional information and data on Bingo’s impact on state charities.

Objective #1 – Maintain a strong culture and image of compliance and trust.

Comprehensive Business Plan 2005 – 2007

Strategy #3 – Develop and enhance new and

existing products and technologies.

Strategy #4 – Develop and enhance new and

existing channels for marketing and delivering

TLC products and growing contributions.

Strategy #5 – Implement processes to

enhance the efficiency of operations (includ-

ing new uses of technology).

Strategy #6 - Improve in-house capabilities to

identify and assess emerging opportunities

and threats to the TLC.

Strategy #7 – Increase the efficiency and

effectiv

eness of the

C thr

ough better

intra-organizational communications.

Strategy #8 – Enhance professional develop-

ment initiatives within the TLC.

Action Plan #7 – Study demographics, identify growth markets and

develop new products that appeal to them.

Action Plan #8 – Develop an “R&D Pipeline” analysis to align organi-

zation around new gaming innovations and technologies.

Action Plan #9 – Evaluate utilizing informative marketing techniques

and studying multiple message-delivery media formats to more effec-

tively share knowledge about the TLC and its games with playing

and non-playing Texans.

Action Plan #10 – Develop a business plan for a virtual “Lottery Store”

that would sell Lottery-branded gifts and apparel.

Action Plan #11 – Consider utilizing cross-promotional opportunities

with quality brands and large retailers.

Action Plan #12 – Utilize the deployment of emerging lottery product

technologies to foster expansion strategies in new distribution channels.

Action Plan #13 – Enhance retailer licensee recruitment efforts.

Action Plan #14 – Enhance and expand communications processes

with licensees.

Action Plan #15 – Study enterprise-process impact of new technology

investments, including staffing impact.

Action Plan #16 – Develop a Contract Procedures Guide containing

contract “best practices,” “lease vs. buy” analyses for capital purchas-

es, etc.

Action Plan #17 – Revisit the structure of long-term contracts to assess

and identify opportunities to enhance current services, reduce costs

and/or better align financial interests of vendors with the TLC.

Action Plan #18 – Implement “paperless” (e-records management)

initiatives.

ction P

lan #19 –

elop a R

esour

ce Center to assess emerging

opportunities and threats and accumulate research on gaming trends

and technologies that may aid the TLC’s management and State pol-

icymakers in evaluating the future of gaming in Texas.

Action Plan #20 – Develop an Intranet for sharing internal knowledge

and r

esources.

Action Plan #21 – Implement process for encouraging, reviewing and

rewarding employee-developed innovations.

Action Plan #22 – Continually reassess the effectiveness of the TLC’s

organizational str

uctur

e, outsour

cing support functions where appro-

priate.

Action Plan #23 – Develop a mentoring program within the TLC.

Objective #3 – Plan responses to emerging environment.

Objective #4 – Improve the quality, skill and satisfaction of TLC staff.

Objective #2 – Grow contributions to Texas’ Foundation School Fund.

II. OVERVIEW OF THE TEXAS LOTTERY COMMISSION

The Texas Lottery Commission (TLC) has two main functions:

The

TLC, under the authority granted the agency by the State Lottery Act, administers the Texas Lottery

games in an efficient and secure manner using appropriate marketing tools and innovative technology to

generate revenue for the State of Texas while enhancing public confidence in the integrity and fairness of

the games.

The

Charitable Bingo Operations Division is charged under the Bingo Enabling Act with the regulation

and administration of all charitable bingo-related activities in the State of Texas, and contributes to the

regulatory and tax and revenue collection functions of the agency. The Division licenses all bingo-related

activities, collects taxes and prize fees generated from the conduct of charitable bingo, audits bingo

licensees, conducts tests on bingo products intended for use in Texas, such as bingo paper, pull-tabs and

electronic equipment, and makes quarterly allocations to local units of government for their share of the

prize fees collected.

Article III, Section 47, of the Texas Constitution, Chapter 467, Government Code, the State Lottery Act

and the Bingo Enabling Act are the operative laws for the TLC. These laws set out the primary duties

and powers of the TLC, which are to administer and appropriately market the Texas Lottery and to regu-

late charitable bingo in Texas.

1. History

In November 1980, Texas voters approved a constitutional amendment authorizing charitable bingo on a

local option basis. The amendment required all bingo proceeds be spent in Texas for charitable purposes.

The first bingo licenses were issued in the spring of 1982.

In November 1991, Texas voters approved a constitutional amendment authorizing a state lottery. The

Texas Lottery began generating revenue for the State of Texas in 1992 as a division within the

Comptroller of Public Accounts.

The TLC was formed as an independent agency on September 1, 1993. Regulatory authority for

charitable bingo was transferred to the Texas Lottery Commission effective April 1, 1994. The Texas

State Legislature decided that profits from the Lottery would be dedicated specifically for education in

the State of Texas after September 1997.

C Agency S

trategic P

lan: F

or Fiscal Years 2005 – 2009, p. 6.

Ibid., pp. 2, 50.

Texas Lottery Commission

2. Management and Organizational Structure

The three-member Texas Lottery Commission sets policy, promulgates rules for the agency, and performs

all other duties required by law. The Governor appoints Commission members, with the advice and con-

sent of the Senate, to staggered six-year terms. One member must have experience in the bingo industry.

The Executive Director, the Charitable Bingo Operations Director, and the Internal Audit Director

report to the three-member Commission.

• The

Executive Director is the focal point for decision-making and strategic planning for the

administration of the agency. The Executive Director is also the primary source of information to

the Texas Legislature, Governor’s Office, and other state governmental entities for agency- and

Lottery-related issues.

• The

Charitable Bingo Operations Director is responsible for the day-to-day operations relating to

the regulation of charitable bingo, ensuring that the staff carries out applicable state law and TLC

policies. The Charitable Bingo Operations Director is also the primary source of information to

the Texas Legislature, Governor’s Office, and other state governmental entities for charitable

bingo-related issues.

• The

Internal Audit Director serves as the in-house independent appraisal function, assisting

management and the three-member Commission in the effective discharge of their responsibilities.

To this end, the Internal Audit Director is responsible for providing analyses, appraisals, recom-

mendations, counsel, and information concerning the activities reviewed to improve the effective-

ness of risk management, control, and governance processes.

The agency is divided into 12 divisions: Executive, Charitable Bingo Operations, Internal Audit, Lottery

Operations, Security, Information Technology, Financial Administration, Marketing, Legal, Human

Resources, Media Relations and Governmental Affairs. Except for the Charitable Bingo Operations and

Internal Audit directors, who report directly to the Commissioners, each division director reports to the

Deputy Executive Director, who

reports to the Executive Director.

FTE Analysis by Division

As of May 2004, the TLC had 325

full-time equivalent (FTE) positions

allocated to 12 divisions:

Ibid., p. 12–13.

Executive 4.0 1.2

Charitable Bingo Operations 47.5 14.6

Internal Audit 4.0 1.2

Lottery Operations 107.5 33.1

Security 45.0 13.8

Information Technology 33.0 10.2

Financial Administration 27.0 8.3

Marketing 24.0 7.4

Legal 12.0 3.7

Human Resources 10.0 3.1

Media Relations 7.0 2.2

Governmental Affairs 4.0 1.2

Totals 325.0 100.0

TLC Division FTEs %

Comprehensive Business Plan 2005 – 2007

3. Vision, Mission and Core Values

Vision –

To be the preeminent Lottery and Charitable Bingo agency through innovative leadership.

Lottery Mission – The Texas Lottery is committed to generating revenue for the State of Texas through

the responsible management and sale of entertaining lottery products. The Texas Lottery will incorporate

the highest standards of security and integrity, set and achieve challenging goals, provide quality cus-

tomer service and utilize a TEAM approach.

Charitable Bingo Mission – Provide authorized organizations the opportunity to raise funds for their

charitable purposes by conducting bingo. Determine that all charitable bingo funds are used for a lawful

purpose. Promote and maintain the integrity of the charitable bingo industry throughout Texas.

Core Values

Integrity and The Commission works hard to maintain the public trust by protecting and ensuring the

Responsibility security of our lottery games, systems, drawings and operational facilities. We value and

require ethical behavior by our employees, licensees and vendors. We promote the

integrity of charitable bingo in Texas for the benefit of charitable organizations.

nnovation We strive to incorporate innovation into our products to provide the citizens of Texas with

the best entertainment experience available through our products. We pursue the use of

technology that enhances the services that we provide to our customers and reduces our

operating expenses.

iscal We emphasize fiscal accountability by ensuring that all expenditures directly or indirectly

Accountability generate revenue, enhance security, fulfill regulatory requirements, improve customer

service and/or boost productivity. We recognize our responsibility in generating revenue for

the State of Texas without unduly influencing players to participate in our games. We

maximize benefits to charities through the continual examination and review of charitable

bingo operations.

ustomer The Commission takes pride in providing exemplary service to the people of Texas through

esponsiveness the courteous dissemination of clear and accurate information about our products,

services and regulatory functions. We seek and respond to feedback expressed by our

employees, retailers, licensees and the playing and non-playing public. We apply this feed-

back in the development of our products and in the services we provide.

eamwork We are committed to creating an environment of mutual respect where open, honest

communication is our cornerstone. We embrace the diversity of our team and individual

perspectives in working together to achieve our common goals.

xcellence We strive for excellence by taking a position of leadership on issues that impact the TLC

and achieve challenging goals by focusing on our core values.

Texas Lottery Commission

III. MARKET ANALYSIS

1. General Environment

State lotteries have progressed from nonexistent to pervasive in just 40 years since New Hampshire

became the first state to enact a state-run lottery in 1964. Texas became the 35

state to legalize lottery

operations in 1992.

Today, nearly 40 states conduct lotteries. Charitable bingo and/or other charitable

gaming activities are legal in 46 states and the District of Columbia.

Charitable bingo and Lottery products compete in a mature yet dynamic market for the discretionary

entertainment dollars of primarily Texans over 18 years of age. In order to maximize its contributions to

the Foundation School Fund, the Lottery must understand its market environment, population and

competition and tailor its business strategies appropriately. Charitable Bingo supports the efforts of chari-

table organizations to raise funds for their charitable purposes and ensure the integrity of the industry.

Additionally, taxes collected from the conduct of charitable bingo are remitted to the State’s General

Revenue Fund. The TLC strives to provide the citizens of Texas with the best entertainment experience

available through its products. Periodically, changes are recommended to keep the games innovative and

exciting for Texas players.

New and potential technologies, game innovations and legislative changes present a dynamic environ-

ment for the TLC and its industry in fiscal years 2005 – 07. The Lottery responded to legislative author-

ization to engage in multi-jurisdictional gaming by agreeing to join the

Mega Millions game, which was

launched in Texas in late 2003. Mega Millions is representative of opportunities that the TLC may be

tasked to manage for the benefit of the people of Texas. The Charitable Bingo Operations Division

expects that a new legislative change doubling the number of temporary bingo games that may be con-

ducted by bingo operators will have a positive impact on bingo attendance and yield incremental value

to the charities for which they operate.

Additional trends occurring in the gaming industry include

Internet gaming, video lottery terminals, Keno and linked bingo games.

http://www.library.ca.gov/CRB/97/03/Chapt3.html

http://www.irs.gov/pub/irs-tege/eotopicd96.pdf

TLC Agency Strategic Plan: For Fiscal Years 2005 – 2009, p. 56.

Comprehensive Business Plan 2005 – 2007

2. Markets and Demographics

The Lottery and charitable bingo market population includes primarily Texans at least 18 years of age.

Previous market studies for Lottery games show a diverse playing public that is generally representative of

the State’s population.

Ethnic, gender, education and household income demographics fail to identify

dominant characteristics that would influence the TLC’s marketing strategy.

Charitable bingo players tend to be Caucasian, married, female and over 65 years of age with a high

school education and annual incomes of less than $25,000. This dominant demographic highlights the

cultural and social aspects of the games that align with older Texans. Attendance at licensed bingo games

was approximately 22.8 million in 2003.

The following table presents highlights from the TLC’s most recent demographic studies:

Household Income

Education

Age

Gender

thnicity

Texans most likely to play have

annual incomes greater than

$50,000; those least likely to play

have incomes less than $20,000.

Adults with some college educa-

tion and college degrees represent

67% of player population; Texans

with less than a high school edu-

cation are the least likely to play

(8%).

Mor

e than 45% of player base

falls within 36 to 55 years old;

seniors (65+) and young adults

(18-25) are the least likely to par-

ticipate, with 11% each.

Slightly skewed towards females.

elativ

ely pr

oportionate to State's

population.

Texans most likely to play have

incomes of $10,000 to $24,999; those

with incomes greater than $60,000

play more frequently (3 times per

week).

Adults with a high school education

(40%) are the most common, followed

by those with some college experience

(23%). College graduates are least like-

ly to play.

Seniors (65+) ar

e the most common;

those under age 35 are least likely to

play.

83% are female.

16% ar

e African American, compar

to less than 10% for Lottery.

Demographic Lottery Charitable Bingo

C Agency S

trategic P

lan: F

or Fiscal Years 2005 – 2009, p. 56–61.

Texas Lottery Marketing Plan Fiscal Year 2003: Five Year Plan 2003 – 2007, p. 3–5.

TLC Agency Strategic Plan: For Fiscal Years 2005 – 2009, p. 58.

Texas Lottery Commission

3. Products

The TLC offers two categories of game styles to its players: (1) Instant products (Scratch Offs) consist of

games that allow players to purchase tickets with a variety of themes, play-styles and price points. Instant

games offer players the immediate gratification of winning a prize; (2) “On-line” products are those

games in which tickets are generated from a terminal connected to a central system, and a drawing is

held to determine a set of winning numbers. There are currently five on-line games offered.

Instant Games – Instant games are played by scratching off a latex covering on each ticket to see if a

prize has been won. A variety of themes, play styles and prize structures are available in a constantly

revolving lineup of approximately 100 games. Players enjoy multiple chances and multiple ways to win

on each ticket. The fiscal year 2005 sales goal for instant games is $2.6 billion.

Lotto Texas

– A twice-weekly on-line game that features a 5-of-44 plus 1-of-44 bonus-ball-style matrix

in which players select five numbers between 1 and 44 plus the bonus ball number for a chance to win a

multi-million dollar jackpot prize. When no ticket matches all six numbers drawn, the jackpot increases

for the following draw. There are eight prize categories, and the odds of winning any prize are 1 in 57.

The highest prize tiers are pari-mutuel, meaning that the prize pool is divided equally among all the win-

ners in the respective prize level. The fiscal year 2005 sales goal for

Lotto Texas is $440 million.

Texas Two Step

– A twice-weekly on-line 4-of-35 plus 1-of-35 bonus ball game. Players select four

numbers plus a bonus ball number for a chance to win a jackpot prize. Jackpots start at $200,000 and

there are seven different ways to win. The fiscal year 2005 sales goal for

Texas Two Step is $40 million.

Pick 3™ – A twice-daily on-line game (12 drawings a week) with a top prize of $500 on a $1 wager.

The fiscal year 2005 sales goal for Pick 3 is $290 million.

Cash Five™ – A daily on-line game with a 5-of-37 lotto-style matrix. All prizes are pari-mutuel (except

for matching 2 of 5, which pays a guaranteed $2). If no ticket matches all five numbers drawn, the prize

pool for the top 5-of-5 prize is allocated or rolls down to the 4-of-5 prize (i.e., does not carry forward).

The fiscal year 2005 sales goal for

Cash Five is $100 million.

Mega Millions™ – A twice-weekly multistate on-line game that features a 5-of-52 plus 1-of-52 bonus-

ball-style matrix in which players select five numbers between 1 and 52 plus the bonus ball number for a

chance to win a multi-million-dollar jackpot prize. The jackpot prize starts at $10 million. When no

ticket matches all six numbers drawn, the jackpot increases for the following draw. Eleven states partici-

pate and share operating costs, creating greater opportunities for giant jackpots. The fiscal year 2005 sales

goal for

Mega Millions is $225 million. The Megaplier™ feature of the Mega Millions game allows play-

ers the opportunity to wager an extra $1 per playboard for a chance to increase their non-grand/jackpot

prize winnings by 2, 3 or 4 times depending upon the Megaplier number drawn. The fiscal year 2005

sales goal for Megaplier is $55 million.

The Marketing Division works with the Lottery Operator (GTECH) and instant ticket vendors to con-

tinuously analyze the product mix and game rules for its on-line and instant games. In particular, instant

games are turned over quickly to optimize retailer inventory management. Approximately 100 instant

games are introduced each year with an average sell-through of 12 weeks.

Comprehensive Business Plan 2005 – 2007

4. Competition

As a state agency operated for the benefit of the people of Texas, the TLC does not face direct competi-

tion for on-line or instant games within its jurisdictional boundaries. However, there are few limits to the

competition for consumer entertainment dollars. Lottery and charitable bingo products are not required

purchases for consumers. When they choose to play, the primary motivation is entertainment; however,

there are numerous entertainment substitutes available, including a growing number of gaming alterna-

tives.

Legal Gaming Alternatives – Horse racing and casinos are the primary legal alternatives for Texans over

the age of 18. Racing is a mature industry that has felt aggressive competition from casinos and race-

tracks equipped with video lottery terminals (VLTs) in neighboring states such as Oklahoma, New

Mexico and Louisiana.

Illegal Gaming Alternatives – The greatest direct competition to the TLC’s Lottery games may come

from the proliferation of illegal gambling devices as defined by Chapter 47, Texas Penal Code.

Non-jurisdictional Gaming Alternatives – The Internet poses similar challenges to the Lottery’s business

model. Web sites and e-commerce applications enable consumers to play games over the Internet that are

operated and administered by primarily non-U.S. companies. Additionally, certain neighboring jurisdic-

tions permit high-stakes bingo games that may draw customers away from charitable games operated in

Texas. The TLC’s greatest competitive advantage over competing or alternative gaming venues is trust—

there are many unscrupulous operators in the gaming world, particularly in the area of Internet gaming.

IV. FINANCIAL OVERVIEW

Communicating historical financial information so that interested parties are provided with a meaningful

overview of the business is a significant challenge for any organization the size of the TLC. An organiza-

tion with a unique blend of State oversight coupled with an entrepreneurial mission provides unique

financial reporting challenges. For the purpose of business planning, it is important for the TLC to man-

age the cost centers that drive performance while complying with statutory reporting requirements and

managing its business with division-level accountability.

1. Management View – Lottery Operations

As a State entity, the Lottery is accountable for all expenditures in order to ensure taxpayers that the con-

tributions to the Foundation School Fund are maximized. A management view of the agency’s budgetary

framework allows the agency to monitor and supervise divisional budgetary responsibilities. The Lottery

currently operates in fiscal year 2004 with an annual budget of approximately $167 million as deter-

mined by the Legislature. From an operating budget perspective, these funds have been allocated to the

divisions as shown in the following table.

http://txrc6.txrc.state.tx.us/new_agency/publications/stratplan/sp2003.htm

Texas Lottery Commission

2. Transparent View – Lottery Operations

The basic management view fails to communicate on the surface the important fact that more than

three-quarters of Lottery appropriations are committed to third parties via outsourced contractual

arrangements or fixed retailer bonuses. The $107.5 million Lottery Operations budget includes $74.4

million to the Lottery Operator, GTECH, $15.7 million for instant ticket production fees and $5.9 mil-

lion for bonuses paid to retailers that sell certain winning tickets. Although the Lottery Operations

Division has some limited impact on these costs, the majority are contractually fixed based on market

rates or based on the outcome of lottery drawings. Thus, what appears to State policymakers as a $107.5

million operating budget is in fact an $11.6 million operating budget with oversight of nearly $100 mil-

lion in contractual obligations and fixed retailer bonuses.

Lottery Operations

Marketing/Advertising

Security

Information Technology

Financial Administration

Legal

Executive Administration

Media Relations

Human Resources

Governmental Affairs

Internal Audit

Mandatory Appropriations

Reductions

Total Appropriations

$ 107,556

40,998

5,746

5,342

1,326

1,248

2,732

557

539

274

245

586

$ 167,149

64.4

24.5

3.4

3.2

0.8

0.7

1.6

0.3

0.2

0.4

100.0

Division Budget (000s) % of Total

Comprehensive Business Plan 2005 – 2007

Following is a simplified transparent view of the TLC’s annual Lottery budget:

3. Charitable Bingo

The Charitable Bingo Division operates within an annual budget of $12.4 million:

Contractual obligations:

Lottery Operator commissions

Mass media advertising services

1% winner's bonus - retailers

Instant ticket production costs

Total contractual obligations

Division budgets:

Lottery Operations

Marketing/Advertising

Security

Information Technology

Financial Administration

Legal

Executive Administration

Media Relations

Human Resources

Governmental Affairs

Internal Audit

Mandatory Appropriations Reductions

Total Appropriations

$ 74,369

32,864

5,900

15,700

128,833

11,587

8,134

5,746

5,342

1,326

1,248

2,732

557

539

274

245

586

$ 167,149

44.5

19.7

3.5

9.4

77.1

6.9

4.9

3.4

3.2

0.8

0.7

1.6

0.3

0.2

0.4

100.0

Budget (000s) % of Total

Prize Fee Allocations

alaries and

ages:

Enforcement

Licensing

Accounting

Education

Rentals and Leases

Consultant and P

ofessional

Travel

rinting and R

epr

oduction

ther

Total Appropriations

$ 9,854

1,126

696

180

122

178

$ 12,446

79.2

9.0

5.6

1.5

1.0

1.4

0.7

0.6

0.5

100.0

Expenditures 2004 Budget (000s) % of Total

Texas Lottery Commission

In 2003, the State’s General Fund received $3.1 million in charitable bingo license fees and $21.7 mil-

lion in prize fees, taxes, penalties and interest related to charitable bingo activities. After prize fee alloca-

tions but before Charitable Bingo Operations Division appropriations, $15.1 million was deposited in

the General Revenue Fund.

Because it regulates the industry (in contrast to the Lottery, which operates the games), the scope of the

Charitable Bingo budget does not truly communicate the scale of charitable bingo activities and their

contributions to society in the State of Texas. In 2003, the reported gross receipts from charitable bingo

activities were $576 million, prizes paid to bingo players were $418 million, and charitable distributions

amounted to just under $30 million.

V. B USINESS PLAN FRAMEWORK

A common platform and perspective of the organization is necessary for management teams to work

together effectively towards the development of a business plan. Without establishing a common frame-

work, department leaders may inaccurately perceive how their group must contribute toward achieving

the goals of the larger organization. Within the TLC, there are five key areas within which most activities

can be categorized:

1. Compliance

– The TLC is a creature of statute; accordingly, adhering to state laws and policies is the

organization’s first order of business. The TLC has worked to instill a strong culture of compliance

driven by its commissioners at a policy level and by its executives at an operations level. The Legal,

Governmental Affairs, Charitable Bingo Operations, Lottery Operations, Marketing, Financial

Administration, Security and Internal Audit Divisions all play a key role in this function.

2. Trust – Without the public’s trust and confidence, the TLC would effectively go out of business.

Security, Charitable Bingo Operations and Lottery Operations play critical roles in sustaining trust in

the games Texans play. However, the integrity of all divisions and every TLC employee is essential to

maintaining this trust.

3. Contributions and Charitable P

roceeds – Once compliance is assured and trust is maintained, the

TLC pursues revenues for the purpose of contributing to the Foundation School Fund and support-

ing charitable bingo activities for the benefit of nonprofit organizations that participate. Lottery and

Charitable Bingo Operations, Marketing, Media Relations and Financial Administration play signifi-

cant roles in these endeavors.

4. Communications

– Effectively sharing information directly impacts the efficiency and performance

of the organization. This function includes both external communications (Marketing, Media

Relations, Governmental Affairs, etc.) and internal communications (planning, goal-setting, inter-

departmental resource allocation, etc.). The TLC is committed to ensuring that the mission and pur-

pose of the organization are clearly communicated and understood by the public.

5. P

eople – Successful organizations must recruit, retain and develop quality people. The TLC strives to

create a positive working environment for its employees, as evidenced by the results of the 2003 – 04

Survey of Organizational Excellence, which showed that the TLC had measured improvements in 17

of 20 constructs, including Goal Orientation, Fairness, Supervisor Effectiveness and Change

Orientation. The TLC is positioned to be a model organization within Texas state government in

terms of fostering a culture of compliance, integrity and operational excellence.

Comprehensive Business Plan 2005 – 2007

VI. OBJECTIVES

The TLC’s management has articulated four key objectives for the agency during the three-year (fiscal

years 2005 – 07) scope of the business plan development process. These objectives will provide the TLC’s

management with a common basis to define priorities within the agency.

Objective #1 – Maintain a strong culture and image of compliance and trust.

The TLC’s management understands the irreversible damage that would be done if the public’s trust in

the fairness of its games were ever undermined. To ensure continued public trust, the TLC has developed

a strong culture that reinforces the importance of rigorously following processes, complying with applica-

ble laws, and avoiding wherever possible the appearance of misconduct. Knowing how easily trust can be

lost, the TLC’s management has set an objective to maintain its strong culture and image of compliance

with policies and laws that instill trust in the fairness and integrity of its games.

Objective #2 – Grow contributions to Texas’ Foundation School Fund.

The TLC’s management recognizes the important role that Lottery proceeds have in contributing to the

Foundation School Fund and as a part of the State’s overall budgetary strategy. Accordingly, the TLC will

set as a key priority the objective of growing its contributions to the Foundation School Fund. Achieving

this objective encompasses a multitude of strategies and actions designed to grow revenues and reduce

costs through greater operational efficiencies.

Objective #3 – Plan responses to the emerging gaming environment.

With the gaming industry rapidly changing due to technological and public policy advances, the TLC

must continuously monitor its environment and develop internal capabilities to plan for future contin-

gencies, inclusive of both opportunities to grow its contributions to the Foundation School Fund and

support the level of charitable bingo activity that yields resources for nonprofits, and threats that could

undermine the mission of the agency.

Objective #4 – Improve the quality, skill and satisfaction of TLC staff.

The employees of the TLC are responsible for carrying out the mission of the agency. The TLC’s man-

agement recognizes that its employees are its most valuable asset and that investments in their profession-

al development are key to the organization’s ongoing success. Accordingly, the TLC will seek to improve

the quality, skill and satisfaction of its “human capital” during the course of its three-year business plan.

Texas Lottery Commission

VII. STRATEGIES AND ACTION PLANS

Building on the four objectives articulated for the business plan, the TLC’s management has defined

eight strategies for achieving these objectives, and described 23 action plans that will be implemented

during the three-year period from fiscal years 2005 – 07. In this section, the eight strategies are briefly

described and then followed by the action plans linked to them.

Strategy #1 – Implement policies and processes that identify and mitigate risk to the TLC.

The TLC is an organization built on trust—in the fairness and integrity of its games, in its compli-

ance with laws, and in its stewardship of resources. The TLC will continue to allocate resources

towards the implementation of policies and processes that identify and mitigate risk to the agency and

ensure continuation of the public trust.

Action Plan #1 – Develop business continuity planning for potential business-disrupting events.

Developing and maintaining best-in-class business continuity planning is an essential risk management

initiative for the TLC in fiscal years 2005 – 07.

The Lottery Operations and Information Technology Divisions have been jointly assigned to oversee the

development of a business continuity plan. There are two phases to the plan: (1) business resumption

and (2) business contingency-continuity planning.

The agency currently has a business resumption plan in place. The two lead divisions are responsible for

updating the plan and ensuring that it reflects the current business environment. A committee has been

formed between the divisions and work is underway to update the plan. This plan will be fully updated

and changes implemented during the second quarter of FY 2005.

Phase two involves the development of business contingency and scenario planning for significant

changes in the external business environment. The joint division committee, in coordination with the

Strategy #1 – Implement policies and

processes that identify and mitigate risk to

the TLC.

Strategy #2 – Implement a “transparent

operations” strategy.

Action Plan #1 – Develop business continuity planning for potential

business-disrupting events.

Action Plan #2 – Implement an internal vendor monitoring program to

identify potential financial or reputation risks for business disrup-

tion.

Action Plan #3 – Assess cost/benefit of voluntarily adopting private-sec-

tor corporate governance best practices.

Action Plan #4 – Develop an independent process for reviewing and

reporting accusations of inappropriate activity.

Action Plan #5 – Promote a “where the money goes” public awareness

campaign.

Action Plan #6 – Develop a Bingo Annual Report that shares

operational information and data on Bingo’s impact on state charities.

Objective #1 – Maintain a strong culture and image of compliance and trust.

Comprehensive Business Plan 2005 – 2007

Internal Audit Division, is tasked with developing a program to contemplate these events and facilitate

meetings of key agency personnel to develop strategies to ensure agency continuity during such events.

The committee is tasked with implementing an agency Risk Analysis and Business Impact Analysis by

seeking outside resources, including the State Office of Risk Management and/or external vendors spe-

cializing in this area, to assist the agency in this endeavor. This plan will be developed and fully imple-

mented during FY 2005.

The plan will include recovery readiness training programs and any testing required to ensure system and

staff readiness. This training and testing will occur at regular intervals for impacted staff as determined

by the plan development committee and through the approval of executive management. The plan will

be revisited and updated on a biannual basis.

To ensure readiness throughout the agency, all divisions will review the agency’s Business Resumption

Plan to identify needed modifications to the existing plan. Division project leaders will be designated to

coordinate the collection, compilation, and evaluation of all suggestions; revise and distribute the plan to

appropriate staff; and provide for the education and training of division personnel responsible for

responding if/when a business-disrupting event occurs.

Action Plan #2 – Implement an internal vendor monitoring program to identify potential financial or

reputation risks for business disruption.

The TLC is committed to generating revenue through the responsible management and sale of entertain-

ing lottery products. That commitment requires the TLC to incorporate the highest standards of security

and integrity and also requires that this responsibility be carried on by its vendors, lottery retailers and

charitable bingo licensees.

The TLC will monitor its vendors to ensure their performance is consistent with the State Lottery and

Bingo Enabling Acts (as appropriate), agency administrative rules, contractual obligations and other

applicable state law. Code of conduct contract requirements will be strictly enforced to ensure vendors do

not engage in conduct that reflects negatively on the TLC or the lottery or bingo industries in general. A

“zero tolerance” policy will be adopted and contract sanctions imposed for breaches of the contract,

including the assessment of monetary sanctions, liquidated damages, and/or contract termination.

In addition, the TLC will establish internal procedures for reviewing compliance statements provided by

vendors, and will conduct independent reviews to identify potential financial or reputation risks. The TLC

will review financial statements, regulatory filings and monitor vendor performance in other jurisdictions.

The TLC will form a committee with representatives of the Security, Legal, Marketing and Financial

Administration Divisions to determine the scope and process for implementing this program. All divi-

sions represented on the committee will play an ongoing role in the vendor monitoring program.

Action Plan #3 – Assess cost/benefit of voluntarily adopting private-sector corporate governance best

practices.

The TLC’s Internal Audit Division has been tasked with conducting a review of corporate governance

guidelines written for private-sector companies subject to SEC regulation. Internal Audit will identify

and select for implementation those provisions that would add value to the TLC’s control environment

and can be implemented at a reasonable cost. The overarching goal will be to reinforce existing accounta-

Texas Lottery Commission

bility and controls over operations and financial statement preparation, and develop a greater sense of

“transparency” among external users of TLC data.

The best practices that may benefit the TLC to implement include:

• Increased responsibilities of and oversight by audit committees (the TLC’s Commissioners would

likely serve in the capacity of an audit committee, as their current roles and responsibilities mirror

those of private-sector boards of directors);

• Enhanced corporate governance responsibilities, including the certification of financial reports by

the Executive Director and the Financial Administration Director;

• Enhanced financial disclosures, including a report on the effectiveness of internal controls by the

Executive Director and the Financial Administration Director.

The most time- and labor-intensive elements of corporate governance improvements in the private sector

relate to the evaluation of internal controls. Common steps involved in this process would include the

following:

• Establish a model for management to use to document and report on the efficiency and

effectiveness of critical internal controls over the recording of financial information and the prepara-

tion of financial statements.

• Establish a methodology for the attestation by Internal Audit (or external auditors) of management’s

internal control assertions.

The Internal Audit-led process for determining whether implementation of certain corporate governance

improvements would be both feasible and beneficial to the TLC may include the following:

• Phase 1 (Q1 2005) – Review potential process improvements with the Commissioners, Executive

and Deputy Directors, Financial Administration Director, General Counsel and the TLC’s external

auditors and reach a consensus on the private-sector practices that are both relevant to the TLC and

beneficial to implement in substance, if not in form.

• Phase 2 (Q2 2005) – Utilize a corporate governance improvements implementation plan as the

framework for Internal Audit’s 2005 – 07 work plan.

• Phase 3 (2005 – 06) – Document and assess the TLC’s internal control structure, reporting

responsibilities and the effectiveness of its enterprise risk management processes.

The TLC’s Internal Audit Division will lead this initiative, working closely with representatives from the

Executive, Financial Administration, and Legal Divisions. Many activities Internal Audit routinely

undertakes on an annual basis would contribute toward this initiative.

Comprehensive Business Plan 2005 – 2007

Action Plan #4 – Develop an independent process for reviewing and reporting accusations of inappro-

priate activity.

Organizations the size of the TLC must contemplate the possibility of inappropriate activity no matter

how stringent the preventative controls. Given the importance of public trust to the TLC’s operations,

the process by which accusations are handled can be of equal or greater importance than the actual dis-

position of claims. Accordingly, the TLC will evaluate the development of a process for receiving, investi-

gating and reporting accusations of fraud and misconduct that is transparent and utilizes the Internal

Audit function and its direct line of communication to the Commissioners to provide third parties with

assurances that the process is independent of the TLC’s management.

An example of a process that the TLC will consider includes the following key components:

1. Ethics education and awareness – The TLC already has robust programs to educate employees on

State laws and agency ethics policies; additional steps would include further educating employees on

how to report misconduct and the types of scenarios that could occur where filing a report would be

appropriate.

2. Clear channels for reporting accusations – Both employees and the general public would have easily

accessible channels and guidelines for reporting potential misconduct.

3. Standard processes for investigating accusations and reporting findings – The Internal Audit and Legal

divisions would collaborate on developing a process that would allow for rapid dispositions of minor

or clearly frivolous accusations and require robust investigations of serious or material charges.

4. Comprehensive catalog of accusations, stage of investigation and final disposition – All accusations

would be categorized and documented to provide the assurance that no accusations are beyond the

review of the Commissioners and the Legislature.

The Legal and Internal Audit Divisions will be responsible for investigating the cost/benefits of develop-

ing and implementing such a process.

Strategy #2 – Implement a “transparent operations” strategy.

Leading organizations strive for transparency to assure stakeholders that resources are managed well

and are utilized for appropriate business activities. The TLC already operates in an environment where

its activities are closely monitored and its records are open to public inquiry. However, the TLC’s

management has identified areas where its operations, activities and results could be made more acces-

sible to the State’s policymakers and the general public. Accordingly, resources will be allocated

towards increasing the transparency of the TLC’s operations.

Action Plan #5 – Promote a “where the money goes” public awareness campaign.

Lottery proceeds account for a significant portion of the approximately $16.9 billion of annual expendi-

tures for Texas’ public schools.

Public awareness research conducted by the TLC has consistently shown

erage F

iscal 2004 – 2005 biennial F

iscal S

e-U

p estimate published b

y the

exas Legislative Budget Board,

http://www

.lbb

.state.tx.us/Fiscal_Size-up/Fiscal_Size-up_2004-2005_1203.pdf, p. III-6.

Texas Lottery Commission

that only about one in four Texans are aware that Lottery revenue goes to the Foundation School Fund,

and that perceptions about the Lottery improve significantly when Texans are informed about “where the

money goes.”

For many Texans, perceptions about the Lottery and the uses of its revenue for the State may influence

decisions about whether to participate in its games. Accordingly, measurably improving the public’s

awareness of certain basic information may have a direct and significant impact on the Lottery’s annual

sales and net contributions to the Foundation School Fund.

The Lottery will evaluate ways to increase the public’s awareness regarding the dedication of Lottery pro-

ceeds to the Foundation School Fund. It may benefit other state agencies to help the Lottery publicize

“where the money goes” and how this benefits the State and its taxpayers. In FY 2005, the Lottery will

reach out to other state agencies and explore collaborative press releases and activities designed to share

information about “where the money goes.” Working with existing resources in the Media Relations,

Governmental Affairs, Marketing and Executive Divisions, the goal of the TLC is to dramatically

increase the public awareness of how Lottery proceeds are distributed.

Action Plan #6 – Develop a Bingo Annual Report that shares operational information and data on

Bingo’s impact on state charities.

Many organizations produce annual reports directly for key constituents (e.g., shareholders and regula-

tors) and indirectly for the general public. In general, the goal is to inform readers about the strategic ini-

tiatives and recent operating results of the organization. Well-prepared annual reports not only serve the

public interest in access to quality and timely information, but they also educate and align management

with regard to the organization’s strategy and the information that is most useful and relevant to its con-

stituents.

The Charitable Bingo Operations Division will investigate the cost/benefit of preparing an annual report

based on reported data and other collected information. The report would most likely include informa-

tion on gross sales, the dollars contributed to charitable purposes and other relevant data. The report also

would likely provide data for the Legislature on the Charitable Bingo Operations Division’s utilization of

resources and would serve to educate the public about Charitable Bingo activities.

A Bingo Annual Report would likely include much of the following information:

• A brief history of charitable bingo in Texas;

• Letters from the Commissioners and the Charitable Bingo Operations Division Director;

• Information on the types of games, the number and types of licensees, charitable distributions,

allocations, enforcement activities and activities by city and county;

• Brief information and analyses on any nationwide trends in bingo;

• Featured profiles of “successful” bingo operations throughout Texas.

The Bingo Annual Report would be prepared using mostly internal resources but may require nominal

incremental costs for production and distribution expenses.

Comprehensive Business Plan 2005 – 2007

Strategy #3 – Develop and enhance new and existing products and technologies.

The core Lottery product base produces revenues of over $3 billion and contributions approaching $1

billion to the Foundation School Fund on an annual basis. The first priority for achieving TLC’s long-

range objective to Grow Contributions to Texas’ Foundation School Fund is to achieve growth

through incremental and sustainable improvements in marketing and delivery of its existing products

while identifying and evaluating new products and technologies.

Action Plan #7 – Study demographics, identify growth markets and develop new products that appeal

to them.

The markets for on-line and instant Lottery games are considered mature given that the games have been

available to Texans for many years and, without the addition of new gaming activities, market demand is

not expected to grow significantly on its own. It can be a tremendous challenge for organizations in

mature markets to grow revenues and contributions (i.e., profits for private organizations) at rates that

satisfy stakeholders. With its mission to generate revenues for the State of Texas via its Foundation

School Fund, Texas is counting on the TLC to continuously explore its market opportunities, offer

responsible Texans games that provide personal entertainment and opportunities to win, and benefit the

Foundation School Fund.

Strategy #3 – Develop and enhance new and

existing products and technologies.

Strategy #4 – Develop and enhance new and

existing channels for marketing and delivering

TLC products and growing contributions.

Strategy #5 – Implement processes to

enhance the efficiency of operations (includ-

ing new uses of technology).

Action Plan #7 – Study demographics, identify growth markets and

develop new products that appeal to them.

Action Plan #8 – Develop an “R&D Pipeline” analysis to align organi-

zation around new gaming innovations and technologies.

Action Plan #9 – Evaluate utilizing informative marketing techniques

and studying multiple message-delivery media formats to more effec-

tively share knowledge about the TLC and its games with playing

and non-playing Texans.

Action Plan #10 – Develop a business plan for a virtual “Lottery Store”

that would sell Lottery-branded gifts and apparel.

Action Plan #11 – Consider utilizing cross-promotional opportunities

with quality brands and large retailers.

Action Plan #12 – Utilize the deployment of emerging lottery product

technologies to foster expansion strategies in new distribution channels.

ction Plan #13 –

nhance retailer licensee recruitment efforts.

Action Plan #14 – Enhance and expand communications processes

with licensees.

Action Plan #15 – Study enterprise-process impact of new technology

investments, including staffing impact.

Action Plan #16 – Develop a Contract Procedures Guide containing

contract “best practices,” “lease vs. buy” analyses for capital pur-

chases, etc.

Action Plan #17 – Revisit the structure of long-term contracts to assess

and identify opportunities to enhance current services, reduce costs

and/or better align financial interests of vendors with the TLC.

Action Plan #18 – Implement “paperless” (e-records management)

initiatives.

Objective #2 – Grow contributions to Texas’ Foundation School Fund.

Texas Lottery Commission

In October 2003, the TLC commissioned a segmentation study from Ipsos-Reid that identified six pro-

files of Texans based on attitudes towards gaming activities and purchases of Lottery products. The

research identified that two segments—“enthusiastic supporters” and “paternalistic players”—represented

32 percent of Texans yet accounted for 65 percent of Lottery purchases. These segments were identified

in prior studies as having average to lower levels of education and income. Previous marketing campaigns

seemingly catered to the interests of these segments because they emphasized “fun,” “excitement,”

“awareness” and “instant gratification,” generally through brand awareness campaigns. This strategy can

be summarized as principally encouraging existing players to play more often.

Provided that marketing campaigns do not neglect the Lottery’s core base of players, the TLC will only

achieve significant growth with its existing on-line and instant games by reaching individuals currently

represented by market segments identified in the study that are not as frequent players. Three of these

four segments— “comfortable individualists,” “disinterested dabblers,” and “prohibitionists” —represent

50 percent of the population but contribute toward only 32 percent of Lottery purchases. With focused

marketing strategies and sound execution, it may be possible for the TLC to improve attitudes about its

games and, in the process, increase growth in the segments that play its games most frequently.

Following are a few examples of segment-focused marketing strategies that the TLC will evaluate for its

fiscal years 2005 – 07 marketing campaigns:

• Explore marketing strategies focused on one of the common factors between the “comfortable

individualists,” “disinterested dabblers,” and “prohibitionists” segments—they are characterized as hav-

ing higher levels of income and education than the others. Informative marketing campaigns featuring

themes such as “how to play,” “where the money goes” and “play responsibly” are more intellectually

appealing and satisfying to those with concerns or distrust over how the games are conducted.

• Invest research resources into developing new products for new players across all demographics. One

approach that will be evaluated is a marketing campaign that “reintroduces” the Lottery to the pub-

lic. Some players may have never “gotten the word” because they were not in Texas when games

started, or were not of age (younger than 18), or they did not have an interest at the time.

• Develop special offers that appeal to each segment profile (e.g., couponing—buy five

Lotto Texas

tickets, get one free) relative to playing preferences.

• Evaluate the feasibility of capturing player information from Web site traffic with Internet

registration for Second Chance Drawings, special offers/e-couponing, and e-polling/research via the

Web site, as well as using opt-in demographic player information from these activities in support of

marketing strategies for outbound email campaigns and research, provided that privacy controls and

restrictions are maintained and not compromised.

• Evaluate the placement of localized statistics in regional media advertising (i.e., a scroll across the

bottom of Houston area TV spots could read, “Over 300 top prize winning tickets have sold in the

Houston area in the past two years; you could be next!” or “There are over 50 Lottery millionaires

in the Dallas area; you could be next!” as an outdoor or radio tagline). Localized messages could also

be versioned in outbound email campaigns by captured ZIP code data. Jackpot and high-tier win-

ner notification messaging could also be disseminated on a localized level via programmable signs:

“A

Lotto Texas jackpot ticket was sold in Austin—check your numbers!” or “Over 100 top prize win-

ning

Cash Five tickets have been sold in the Lubbock area in the past two years.”

Comprehensive Business Plan 2005 – 2007

Exploring growth through segment-focused marketing and product development strategies will not

require additional resources but, rather, the redirecting of existing staff and agency resources within the

Marketing Division’s advertising budget. This action plan will be implemented early in FY 2005 and will

remain relevant throughout the three-year horizon of the business plan. ROI will be measured with each

investment in new segment-focused marketing strategies relative to historical revenue performance. Also,

the TLC will look for positive trends in future segment profile studies for evidence that new marketing

strategies are achieving the intended results.

Action Plan #8 – Develop an “R&D Pipeline” analysis to align organization around new gaming

innovations and technologies.

Research and development (R&D) is a critical competency for organizations operating in dynamic

industries where new innovations and technologies can significantly impact the results of operations in

the near term (i.e., less than five years). Many organizations have implemented an R&D process called a

“pipeline” analysis. The process of generating this analysis on a quarterly basis instills organizations with

the discipline of generating a steady stream of new products and innovations that may become solid

cashflow producers in the future.

The TLC’s primary purpose for developing an R&D pipeline analysis is intended to identify emerging

technologies and product lines, industry trends, and issues related to vendors (and their industry compe-

tition). The TLC will pursue this analysis through broad-based industry research and evaluation of gam-

ing products that it currently has the legal authority to develop and commercialize in order to grow con-

tributions to the Foundation School Fund. Sources of information for the R&D pipeline analysis may

include vendors (and their industry competition), trade journals, industry analysts, consumer focus

groups, other state and global lotteries and university researchers. A dedicated team within the Marketing

Division’s research department will prepare the analysis with cross-divisional support and direct contribu-

tions from the TLC’s division leaders. The analysis will be formally evaluated on a quarterly basis or as

needed by topic or project.

One model of an R&D pipeline analysis includes four categories for innovation and new technology:

1. D

evelopment phase – products that some lottery jurisdictions have implemented or are in the process

of implementing. The TLC’s Marketing Division will focus on products that could be brought to

market in Texas under existing legislation; products requiring legislation will be referred to the TLC

Resource Center, described in Action Plan #19, for fact-gathering and further analysis.

2. G

rowth phase – products that the TLC has recently implemented but not yet achieved full-scale roll

out or long-term sustainability (e.g., SSTs and Web site marketing). The Marketing Division will

focus on enhancing the success of the efforts.

3. Concept phase

– a futurist’s view of possibilities at least five years from reality (e.g., a global lottery or

bingo game). Concept phase innovations and technologies identified will be reviewed through the

TLC Resource Center for study on the potential long-term impact or opportunity for Texas.

4. R

esearch phase – products developed in the form of prototypes or emerging industry technologies not

yet widely implemented in U.S. gaming jurisdictions (e.g., cell phone based lottery products, which

are utilized in the U.K.). These products would also receive further review and analysis by the TLC

Resource Center.

Texas Lottery Commission

TLC resources related to this action plan will be focused on the Growth and Development phases of

R&D. Concept phase and Research phase R&D efforts are more purely associated with action plan #19.

Work on these phases will be conducted as outlined in that action plan. The TLC plans to dedicate

resources within its Marketing Division to develop the R&D pipeline analysis model. This plan will be

evaluated on a quarterly basis or as needed based on research data.

Action Plan #9 – Evaluate utilizing informative marketing techniques and studying multiple message-

delivery media formats to more effectively share knowledge about the TLC and its games with playing

and non-playing Texans.

“Informative marketing” is the process of sharing information with potential customers that is credible, use-

ful and not overly persuasive in nature. It is founded on the premise that consumers provided with good

information that they trust about a product will be more likely to purchase it. Newsletters, Web sites, direct

mail and direct response television are various media commonly used for informative marketing.

A consensus opinion within the TLC’s management is that consumers would be more likely to purchase

Lottery products if they only had more accurate and timely information about the TLC and its games.

Lottery Operator representatives also share this opinion based on their organization’s significant role in

disseminating timely information about Lottery products to retailers and their store employees. The

TLC’s management actively monitors public perception surveys that repeatedly show the majority of

Texans do not know that TLC’s “profits” are contributed directly to the Foundation School Fund.

The TLC will work with its outside advertising agencies to test informative marketing techniques that

would disseminate credible and timely information that may include the following:

1. How and when to play Lottery games;

2. Information on new games and game features;

3. The current probabilities of winning various scratch-off games and on-line draws;

4. “Where the money goes” (to the Foundation School Fund);

5. What it means to “play responsibly” and where to get help if you or a family member may have a

problem; and

6. How the TLC uses security, internal controls and independent audits to ensure the integrity of

its games.

The primary purpose of this action plan will be to inform and entertain players that may be interested in

purchasing lottery products.

Footage prepared for this type of informative marketing campaign will have several synergistic benefits

for the TLC. For example, demonstrations of how to play the games could be published on the TLC

Web site, distributed to retailers via videotape, and shared with local news organizations when new

games are introduced.

Comprehensive Business Plan 2005 – 2007

Informative direct mail campaigns will also be considered as part of the TLC’s marketing mix. For exam-

ple, “how to play” brochures could be used to educate players on using self-service terminals (SSTs).

These mailings could include trial promotional offers to encourage play. Direct mail could also be cus-

tomized to identify retailer locations with SSTs.

The majority of informative marketing campaigns TLC might consider could be ready for implementation

in fiscal year 2005 and measured for effectiveness throughout the three-year scope of the business plan.

Additional informational marketing activities that will be evaluated include (1) the placement of “how to

play” brochures for all on-line games as newspaper inserts in mid- and high-tier major periodicals,

including a “buy X, get Y” offer or coupon; (2) streaming video “how to play” demos on Web site for

online games and SSTs; and (3) Internet advertising and email campaigns to draw players into the Web

site for informational marketing opportunities.

Web site “how to play” demos and offers could also be created for “Spotlight Game” instant games to

feature on a monthly basis. Web site traffic for informational marketing can be increased by offering

Web demos, special offers (e-coupons, etc.), Second Chance Drawings, and Web-based research studies

through internet advertising (on Texas-specific Web sites, Texas metropolitan newspapers or Texas-based

periodicals), and e-mail campaigns. Response to newspaper inserts could be measured by sales increases

in the weeks following insert dates (minus factors for increases related to rolling jackpots) plus redemp-

tion rates from coupons or offers. Response for Web site demos could be measured by increased traffic to

individual demos, and response to Internet advertising and email campaigns could be measured from

click-through and open rates, plus rates relative to offer/coupon redemption.

One of the major advantages of direct marketing campaigns is that they can often be designed to readily

measure the ROI of mailings and commercials. In addition to responses specific to the campaigns, the

ROI from informative marketing campaigns will be measured in future public perception surveys and

the growth of revenues for products featured in informative advertisements.

Action Plan #10 – Develop a business plan for a virtual “Lottery Store” that would sell Lottery-

branded gifts and apparel.

The TLC brand represents fun, excitement and opportunity and could potentially be a platform for a

successful apparel line and gift-store merchandise that could (1) generate incremental contributions for

the Foundation School Fund and (2) create walking advertisements for the TLC and its games with the

Texans who wear or display them.

Start-up costs for the Lottery Store venture would include the following, among others:

• I.T. and promotional merchandise vendor contracts for software license and merchandise

production/fulfillment to establish secure e-commerce site for purchasing and distributing Lottery-

branded merchandise.

• Initial purchase of inventory for sale.

The TLC will develop a business plan in early FY 2005 for a virtual store to assess the potential risks and

rewards of this initiative. Provided the business plan supports it, the TLC will provide the resulting busi-

ness plan to the Legislature during the 79th Legislative Session.

Texas Lottery Commission

Strategy #4 – Develop and enhance new and existing channels for marketing and delivering TLC

products and growing contributions.

TLC products are sold primarily through retail convenience stores, but management has explored

growing the quantity and diversity of sales channels and achieved encouraging results from outlets

such as grocery stores and through new methods of distribution such as self-service terminals. In order

to achieve the first long-range planning objective to Grow Contributions to Texas’ Foundation School

Fund, the TLC will continue to investigate and develop innovative methods for making its games

accessible to players of legal age that enjoy the fun and excitement of playing the

Games of Texas.

Action Plan #11 – Consider utilizing cross-promotional opportunities with quality brands and large

retailers.

The TLC brand, which represents fun, excitement and opportunity, could potentially match well with

other trusted brands in cross-promotional events. Some examples might include airlines, consumer prod-

uct manufacturers, grocery store chains or car dealers. There are numerous ways in which win-win cam-

paigns could generate retailer sales, Lottery product sales and joint brand awareness.

In selecting potential partners to approach about cross-promotional opportunities, the TLC will perform

the following assessment process:

1. What trusted brands serve target markets for Lottery growth initiatives?

2. What opportunities do brands create to drive foot traffic to retail stores or name collections for direct

marketing initiatives?

3. Would Lottery ticket giveaways increase traffic to the brand and fit within the cost structure of the

brand’s marketing campaigns?

4. Perform due diligence on the cross-promotional partner’s business model, financial and operational

stability. Risks must be assessed before taking on partners to avoid a situation where the partner’s

performance adversely affects the image and operations of the TLC.

Examples of potential cross-promotional marketing campaigns include the following:

• New retail store opening – local radio station broadcasts live from new local convenience store;

offers hourly Lottery ticket giveaways (tickets purchased by local retailer) and free Texas Lottery

merchandise.

• Car dealer test drive – local dealer could offer a $10 dollar Lottery scratch-off game for taking a test

drive of the newest model vehicle.

• Airline arrivals – Texas-based airlines could announce current jackpots and where to buy tickets as

planes prepare for landing at Texas destinations.

Comprehensive Business Plan 2005 – 2007

• Customer acquisition and retention tool for businesses looking for marketing incentives for

prospective customers. An example would be a phone company that direct mails Lottery coupons as

an incentive for customer sign up. The coupons could be co-branded with Lottery and company

information, and would provide the prospective customer with credit for an on-line or instant game

purchase.

• Frequent Player Program with a loyalty card that builds points with every on-line game purchase.

For example, every Lottery purchase would build points or air miles with an airline, a Lottery-spe-

cific rewards program, points specific to a retailer (convenience store or grocery store). Instant game

rewards could also be developed with a unique code on each ticket that would be entered into the

player’s account via the Web site or SST for building rewards. The frequent player account could

also be accessed via the SST. Rewards for these programs could include anything from air miles,

points that build toward special offers (free play), TLC promotional merchandise or in-store credits

for merchandise at a convenience store or grocery store chain.

The Marketing Division will evaluate and determine the best strategies and offers for cross-promotional

campaigns, develop package deals to offer retailers, corporate accounts and Texas based companies, and

work closely with the Legal Division prior to initiating agreements with potential partners. The TLC will

launch approved campaigns in late FY 2005 or early FY 2006. The ROI will be evaluated on a case-by-

case basis.

Action Plan #12 – Utilize the deployment of emerging lottery product technologies to foster expan-

sion strategies in new distribution channels.

Advancements in industry-related technology can expand the viable sales and placement of Lottery prod-

ucts. One recent example is the self-service terminal (SST), which represents a unique ticket delivery

device that opens up the opportunity to expand existing sales and distribution channels (locations) and

explore new sales and distribution channels that are non-traditional TLC locations.

Retailer licensee recruitment staff have been assigned to evaluate, identify and recruit new types of retail-

er licensees that will deploy SSTs in their locations, as well as expand the Lottery’s presence in existing

product distribution channels. An ongoing review is being conducted on the deployment of similar

devices in other jurisdictions and industries to determine optimum locations for success. Additionally, an

assessment will be conducted of existing licensee rules and sales requirements related to the deployment

of new technologies.

The TLC will evaluate the use of pilot programs for the deployment and testing of new technologies.

Successful deployment of new technologies may require lottery vendors to dedicate resources in support

of new licensee recruitment and research and development support. Accordingly, the TLC will coordi-

nate efforts with vendors to ensure that these initiatives will provide an appropriate ROI to the State.

The TLC is committed to keeping abreast of other emerging lottery product support technologies that

may be used in the expansion of product delivery channels. As these technologies become available, the

TLC will evaluate their potential value utilizing strategies similar to those outlined above.

Texas Lottery Commission

Action Plan #13 – Enhance retailer licensee recruitment efforts.

The more than 16,000 Texas retailer licensees that sell Lottery products represent by far the most signifi-

cant channel through which the TLC generates contributions for the Foundation School Fund. Most

retailer licensees operate consistently successful businesses and can be relied upon to support the sale of

new and existing Lottery products in the future. The retailer licensee base is also a dynamic business

environment where business sales and acquisitions are a part of the normal operating environment. The

economic climate of the State can also have a significant impact on the licensee base. The Lottery works

to support existing licensees and to recruit new licensees to ensure a stable or growing product distribu-

tion channel (licensee base).

The Lottery will develop a formal recruitment plan beginning in FY 2005 and will update the plan on

an annual basis. Marketing Division recruitment staff will oversee the development and implementation

of the recruitment plan with support and input from Lottery Operations Division—Retailer Services

staff and Lottery Operator sales/recruitment personnel.

The formal recruitment plan will include detailed research of other jurisdictions efforts to expand and

maintain a healthy retailer base. New types of licensee locations, not yet explored in Texas, will be identi-

fied in this process, followed by a specific recruitment strategy. The TLC will also evaluate the viability of

new types of licensee relationships (i.e., online only sales locations, SST-only sales locations, standalone

locations, etc.) to determine if they represent an opportunity to expand product placement to new distri-

bution channels.

For this plan, the Marketing Division will develop a variety of recruitment kits versioned by retailer

industry types and channels of distribution (i.e., convenience store, drug store, grocery store, airport,

hotel, etc.). These kits may include business start up materials (forms, benefits, “how to” guide), lists of

available systems & criteria (GVT Extra, ISYS, SSTs, ITVMs, programmable signs, etc.), lists of available

POS, and lists of sales builder tools and programs. This information will also be available via the TLC

Web site in a section designed for retailer recruitment.

Recruitment efforts will be concentrated in the first six months following the development of the annual

plan to bring in new licensees. With respect to potential new costs resulting from this plan, the TLC

may invest in certain technologies to tailor the lottery product to meet the needs of new types of

licensees (See Action Plan #12). These technologies and their costs will be evaluated on a case-by-case

basis.

The success of the new recruitment initiatives will be measured in fiscal year 2006 as a part of the new

annual recruitment plan development process. Potential measures of the recruitment plan may include,

but are not limited to, evaluating overall (growth in the lottery retailer base year to year) and through

new licensee success measures developed during the recruitment plan phase. These measures may also

include sales comparisons of licensee locations across industries and assessment of groups of retailers

within certain licensee categories (i.e., one chain of drug stores versus another).

Comprehensive Business Plan 2005 – 2007

Action Plan #14 – Enhance and expand communications processes with licensees.

Effective communications with licensees are critical to the success of the TLC in achieving its mission.

Both the Lottery Operations and Charitable Bingo divisions invest considerable resources towards help-

ing licensees understand the laws and policies through which they can conduct legal gaming activities.

Given the importance of maintaining a healthy licensee base, the TLC is committed to continuous

improvement in the area of licensee communications.

The Lottery recently launched an organized effort to enhance communications with retailer licensees

with the implementation of a Retailer Communications Committee (made up of Lottery Operations,

Marketing, Security, Legal Division staff and support from Lottery Operator staff). Current committee

projects include the following:

• Development and launch of more extensive licensee training;

• Development of additional retailer licensee rule-support documents

• Evaluation of licensee outreach programs;

• Enhancement of existing communications tools to reach licensees on important topics (the retailer

publication RoundUp, etc.); and

• Development of new communication tools such as FAQs, instructional training videos and/or

educational videos available via the Web site or through the distribution of CDs or other media to

licensees and their staff.

One key initiative in support of this effort in fiscal years 2005 – 07 is the development of a new internal

Retailer Management System (RMS) that will support a Web-based Retailer Service Center (RSC) cur-

rently under development. The RSC will provide licensees with reports at their convenience, alerts,

FAQs, licensee rules and regulations. The RSC will be continually enhanced in support of licensees to

include new features such as selling tips and success stories from other retailers, etc. New features will be

added in coordination with input from licensees to ensure the best value to the licensee community.

Similarly, Charitable Bingo Operations will evaluate the benefits of developing a Bingo Licensee Service

Center with many of the features of the RSC adapted for bingo licensees. Communications process

enhancements to be evaluated under this initiative will include the following:

• Simplify the process to obtain a bingo license within the requirements of the Bingo Enabling Act.

• Develop a step-by-step guide to be placed on the Web site for organizations contemplating

charitable bingo to review and consider.

• Simplify and clarify the application process while maintaining appropriate regulatory controls so

that the process doesn’t seem overwhelming to organizations run by volunteers.

• Identify avenues to help ensure that nonprofits are aware that charitable bingo exists as a legal and

effective fundraising activity.

Texas Lottery Commission

The Retailer Communications Committee is viewed as an ongoing effort to enhance and expand knowl-

edge of licensees involving licensing requirements, sales techniques and initiatives and best practices for

inventory security. The committee will be required to prepare quarterly reports of its activities and

achievements over the last quarter as well as committee recommendations for future licensee focused

activities. Executive management and involved division directors will use this report to decide the future

direction and of the committee and whether it continues to fulfill a need.

The current development plans for the enhanced Retailer Management System are for a target imple-

mentation date in late FY 2005. It is anticipated that full operational benefits of this system will be real-

ized within one year following the initial system deployment. It is also anticipated that the full benefit of

the Web-based Retailer Service Center to licensees will be realized approximately one year following

implementation. The benefit of both programs will be evaluated, at a minimum, following the first year

of implementation to determine the need for future development efforts.

The Web-based Bingo Licensee Service Center development may begin following the implementation of

the Retailer Service Center after evaluating costs for modification for bingo licensees, determining avail-

able agency resources and following the assessment of value to bingo licensees. The TLC will consider

whether some elements of the Bingo Licensee Service Center could be implemented concurrent with the

Retailer Service Center rollout.

The Service Center components of this action plan represent a commitment by the TLC to provide

exceptional customer service to its licensees. As a state agency, the goal of this program is to best serve

regulated licensees in sharing information and communicating effectively with the agency’s constituency.

This program cannot and will not be measured solely in terms of increased sales on the lottery side. It

will be based on surveys and other measures of licensee satisfaction with the agency as a whole and spe-

cific licensee knowledge of tools and information developed to support them through the Retailer

Communication Committee programs and through Web-based service center communications tools.

Strategy #5 – Implement processes to enhance the efficiency of operations (including new uses of

technology).

Contributions to the Foundation School Fund increase with every dollar saved as well as with every

ticket sold. The TLC is committed to continuing its internal focus on efforts to improve processes

throughout the organization, thereby improving the consistency, efficiency and dependability of oper-

ations and revealing opportunities to reduce costs and increase contributions.

Action Plan #15 – Study enterprise-process impact of new technology investments, including staffing

impact.

Organizations perpetually manage the cycle of (1) making the best use of limited resources, (2) imple-

menting new technologies to drive efficiency and free resources, and (3) reallocate resources to new proj-

ects and initiatives. Particularly when new technologies are implemented, organizations often discover

that the standard processes and controls that had served them so well in the past are no longer the most

efficient or effective methods of doing business. The task of adopting new technologies is incomplete

without re-mapping the processes affected and determining whether resource allocations prior to the ini-

tiative, including staffing levels, remain appropriate in the new environment.

Comprehensive Business Plan 2005 – 2007

In 2003, the Information Technology (I.T.) Division established an Automation Steering Committee,

consisting of the Executive Management Team and I.T. Managers, to help review and prioritize compet-

ing agency I.T. initiatives. Concurrent with implementing new technologies, the TLC will consider lever-

aging and extending the work of this Committee to include process mapping and resource requirements

analyses (e.g., work force planning) for the affected divisions, both during the planning of new technolo-

gy implementations and in the post-implementation follow-up.

Similar to the workforce planning that occurs agency-wide in conjunction with the Strategic Plan, each

I.T. initiative will include an evaluation of related workforce needs. Workforce planning identifies future

employee skill set needs in comparison to current employee resources and develops strategies to offset the

gaps in those skills through employee development or hiring.

For example, one recent I.T. initiative for which process mapping and resource requirements analyses

may be performed is the e-Strategy Project. In 2003, this project was undertaken to redesign the Texas

Lottery and Charitable Bingo Web sites. This effort sought to better utilize automation, streamline

processes and align technology with the TLC’s business. Another objective of the e-Strategy Project was

to create an engaging presentation of information and allow retailers and customers the ability to com-

plete a variety of business transactions online. A post-implementation process mapping and resource

requirements analysis will help ensure that the new technology is fully utilized, the ROI from the initia-

tive can be reasonably estimated and resources can be redeployed to ensure peak efficiency.

Action Plan #16 – Develop a Contract Procedures Guide containing contract “best practices,” “lease

vs. buy” analyses for capital purchases, etc.

Business processes for which contracts are developed and executed—with service providers, capital equip-

ment suppliers and other parties the TLC engages to achieve its mission—represent an important area

for which continuous improvement is essential to increasing the efficiency and effectiveness of TLC oper-

ations. Enhancing and formalizing contract “best practices” will help the TLC make informed and

thoughtful decisions through the use of a structured decision making process, when deciding whether to

purchase, lease or otherwise procure capital items.

Developing and leveraging the TLC’s best practices will begin by evaluating relevant, publicly-available

research materials such as the General Accounting Office’s “Executive Guide: Leading Practices in

Capital Decision Making.” Other State of Texas agencies may have similar materials the TLC can utilize

in refining its own policies and procedures.

Using existing staff resources from the Lottery Operations, Financial Administration, Legal and

Executive Divisions, the TLC will establish a committee to perform the following tasks:

1. Research best practices, including those published by the General Accounting Office;

2. Highlight processes and controls that are relevant to TLC operations and cost-effective to implement;

3. Customize key processes into a Contract Procedures Guide;

Texas Lottery Commission

4. Conduct training on TLC processes with all employees responsible for negotiating contracts and/or

5. Develop quality control tests, including Internal Audit reviews, to ensure that best practices are

adopted and continuously improved through internal recommendations and updates to the Contract

Procedures Guide.

Action Plan #17 – Revisit the structure of long-term contracts to assess and identify opportunities to

enhance current services, reduce costs and/or better align the financial interests of vendors with the

TLC.

The TLC has entered into outsourcing contracts with certain vendors to provide strategic operating

activities for which it would be less cost-effective for the TLC to develop in-house the technologies and

expertise to manage on its own. To achieve the optimal alignment of interests, these contracts must

emphasize the goal of maximizing the TLC’s annual contributions to the Foundation School Fund.

The inherent risk of outsourcing key operations lies in the loss of alignment on this goal. Outsource

service providers have shareholders or partners motivated to maximize net income based on the provi-

sions of their agreements with the TLC. Accordingly, outsourcing arrangements can be most effective if

the vendors and customers can closely align their financial interests within the terms of the contracts.

Though perfect alignment may be unattainable, the TLC will study its current contractual arrangements

to determine if certain provisions could be revised for the mutual benefit of the TLC and its strategic

partners.

The TLC will continue to evaluate ways to find greater alignment between the goals of the agency and

those of its vendors.

Action Plan #18 – Implement “paperless” (e-records management) initiatives.

A significant trend in information technology solutions shows that public and private sector organiza-

tions alike are rapidly adopting e-records management solutions in response to public demands for

improved enterprise governance. The technology carries the potential for significant cost-savings and

improved operational efficiencies. Additionally, risk management concerns have made e-records manage-

ment solutions a necessary purchase for many organizations.

The TLC successfully utilizes an e-record file management system for retailer licensee records. This pro-

gram has resulted in significantly reduced file storage needs, enhanced access to file data by multiple e-

records system users and more efficient records retention. The executive management of the TLC has

committed to the expansion of e-records strategies as an agency priority based on the success of current

initiatives.

The agency will evaluate and prioritize the implementation of e-records programs based on value to the

agency. Some of the factors that will be considered include the number of staff sharing the records, the

frequency of accessing this data and the cost to store these records in physical form. A committee has

been formed and an initial profile conducted with plans to complete the assessment in the coming

months. Based on this assessment, the agency will develop an implementation plan.

Comprehensive Business Plan 2005 – 2007

Due to both its strategic importance for cost-savings and risk management, the TLC will continue to

prioritize this initiative, expanding it as time and resources permit to ensure a best-in-class implementa-

tion of e-records technologies, policies and processes by the end of FY 2007.

Strategy #6 – Improve in-house capabilities to identify and assess emerging opportunities and threats

to the TLC.

Organizations must continuously monitor industry developments to plan for changes in the environ-

ment that could either improve their operations or cause them competitive harm. The TLC operates

in a rapidly changing environment due to both technological advances and general gaming industry

trends. Accordingly, the TLC’s management will invest resources to enhance the TLC’s ability to iden-

tify and assess future opportunities and threats.

Action Plan #19 – Develop a Resource Center to assess emerging opportunities and threats and accu-

mulate research on gaming trends and technologies that may aid TLC’s management and State policy-

makers in evaluating the future of gaming in Texas.

Many organizations find it challenging to keep a watchful eye on the future while managing day-to-day

demands with limited resources. However, it is imperative for successful organizations to allocate

resources for forward-looking activities so that managers can engage in proactive and efficient planning

rather than reactive and inefficient problem solving. One example of a forward-looking activity is

research of industry trends and technologies that may impact the Lottery’s sales and net contributions to

the Foundation School Fund or charitable distributions from the conduct of charitable bingo.

It is consistent with the TLC’s mission to be a reliable source of information for the State’s policymakers.

The TLC will implement a formal process to develop and maintain timely and effective analysis of gam-

ing trends and technologies to ensure that the TLC delivers the best service possible in this area. It

should be noted that the TLC’s management is committed to being a fact resource on lottery- and

bingo-related gaming issues and maintains a consistent policy to avoid advocating legislation.

The TLC’s primary purpose for developing a Resource Center is to identify emerging technologies and

product lines through broad-based industry research and evaluate gaming products and trends that may

impact the Lottery and charitable bingo in Texas. The Resource Center will be located in the TLC’s

Marketing Division Research area. Its focus will include evaluation of current industry events and tech-

nologies as well as evaluating emerging trends and technologies and forecasting their potential impact on

the Lottery and charitable bingo in Texas.

Where merited, the Resource Center team will prepare research to thoroughly assess innovations or tech-

nologies of interest to the Texas Leadership. This research may include product summaries, fiscal impact

statements, operational cost analyses, infrastructure/technology needs, analyses of required statutory

Strategy #6 - Improve in-house capabilities to

identify and assess emerging opportunities

and threats to the TLC.

Action Plan #19 – Develop a Resource Center to assess emerging

opportunities and threats and accumulate research on gaming trends

and technologies that may aid the TLC’s management and State pol-

icymakers in evaluating the future of gaming in Texas.

Objective #3 – Plan responses to emerging environment.

Texas Lottery Commission

changes, and any other relevant information useful to policymakers when considering proposed legisla-

tion.

Over time, the R&D pipeline reports will be indexed and maintained as a knowledge base for TLC’s

management and other interested parties. Sources of information for the Resource Center may include

vendors (and their industry competition), trade journals, industry analysts, consumer focus groups and

university researchers. Research will be kept fresh with periodic updates on previously prepared reports as

needed. New reports will be prepared on an ongoing basis.

With the Resource Center in place by the beginning of FY 2005, the TLC will be capable of providing

better and timelier information when requested by policymakers, improve its strategic planning capabili-

ties and be positioned to adopt new technologies and innovations. Additionally, the TLC will be more

capable of defensively positioning its products against competing entertainment products that may

emerge, thereby safeguarding and potentially increasing its annual contributions to the Foundation

School Fund and supporting charitable distributions from the conduct of charitable bingo.

Strategy #7 – Increase the efficiency and effectiveness of the TLC through improved intra-organiza-

tional communications.

Recognizing that the success of an organization often rests in its ability to successfully share knowl-

edge and information internally to improve decision-making processes and operational results, the

TLC has made an ongoing commitment to enhance cross divisional communication and organiza-

tional interaction. In an effort to improve the quality, skill and satisfaction of the TLC staff, the TLC

will focus resources on knowledge-sharing throughout the agency.

Action Plan #20 – Develop an Intranet for sharing internal knowledge and resources.

An Intranet uses Internet-based technologies within an organization to provide access to agency informa-

tion and applications, improving communications within an organization by providing consistent and

standardized methods for communicating with staff in both headquarters and field offices. Application

files, such as video files, containing prerecorded management messages or meetings can be made available

benefiting field office locations by enhancing communication and providing a greater sense of connect-

edness to the home office. An Intranet is also a useful tool for disseminating management information

(budget reports, legislative reports, etc.), operational information (sales data, procedures, publications,

etc.), training initiatives (EEO training, New Employee Orientation, etc.), and agency publications

throughout the organization.

Strategy #7 – Increase the efficiency and

effectiveness of the TLC through better

intra-organizational communications.

Strategy #8 – Enhance professional develop-

ment initiatives within the TLC.

Action Plan #20 – Develop an Intranet for sharing internal knowledge

and resources.

Action Plan #21 – Implement process for encouraging, reviewing and

rewarding employee-developed innovations.

Action Plan #22 – Continually reassess the effectiveness of the TLC’s

organizational structure, outsourcing support functions where appro-

priate.

Action Plan #23 – Develop a mentoring program within the TLC.

Objective #4 – Improve the quality, skill and satisfaction of TLC staff.

Comprehensive Business Plan 2005 – 2007

The TLC’s Information Technology Division is currently developing and implementing an Intranet

application. Hardware and software needs have been addressed and the application development and

deployment process is underway. Successful deployment and utilization of this initiative will depend on

all TLC divisions embracing responsibility for determining important division level information that will

be posted on the Intranet and ensuring that the information remains current. The TLC’s management is

committed to the success of this program.

Upon implementation, the TLC will develop internal measurements to assess whether the Intranet is

effectively utilized to meet the agency’s cross-divisional communications goals and the sharing of impor-

tant resource information in a timely manner. Future Intranet initiatives that will be evaluated include:

• Providing a resource center of digitized streamed training videos to staff for ongoing training that

would maximize staff time and provide equal training to staff in the field.

• Enabling executive management, division directors and managers to communicate with small

groups or large segments of staff through brief talks and speeches (video).

• Providing an information resource center for staff to access in the course of their daily work.

Commonly and widely used information could be accessed from a single source to ensure consisten-

cy of information used and disseminated. FAQs could be developed and posted for certain staff to

reference in their daily jobs. This approach would be particularly effective for phone bank, corre-

spondence and claim center staff.

Full implementation of the Intranet will be completed in FY 2006. Evaluation of Intranet initiatives and

their effectiveness will occur on an ongoing basis.

Action Plan #21 – Implement process for encouraging, reviewing and rewarding employee-developed

innovations.

An organization’s employees can provide tremendous value as a source of innovations and ideas for

process improvements, particularly when the organization has established a process for gathering, evaluat-

ing and rewarding employee submissions.

The TLC participated in the Texas Incentive & Productivity Commission’s State Employee Incentive

Program (SEIP), which provided State employees with financial and recognition awards for suggestions

leading to net savings and/or improvements in safety, efficiency and productivity. The Council on

Competitive Government recently voted to end this program and allow individual agencies the opportu-

nity to implement their own employee suggestion programs. The TLC’s management recognizes that

even greater value could be achieved through a uniquely tailored TLC-specific program.

In FY 2005, the TLC will investigate the cost-benefit of developing a TLC-specific program to encour-

age, review and reward employee-submitted ideas and innovations. The Executive Division will oversee

the program, utilizing Human Resources as the lead division and including Marketing, Legal, Lottery

Operations and Charitable Bingo Operations Division staff to evaluate an internal program. The follow-

ing elements will be evaluated as a part of the analysis:

Texas Lottery Commission

1. Encouraging participation – Marketing Division editorial and graphics staff could assist with

developing an internal marketing campaign to create employee awareness of the program and the

potential rewards of participating. Division leaders would be asked to encourage participation within

their teams (and a management incentive program could be developed based on the rate and quality

of participation within divisions).

2. Reviewing submissions – The Human Resources Division would be primarily responsible for

evaluating submissions for completeness (based on published guidelines) and responding to submitters

regarding the review of their ideas. Following a specified process, the submissions would be rated by a

committee and forwarded to appropriate TLC leaders for further review. All submissions would

receive a response within 30 days and a decision/resolution within 90 days.

3. Rewarding excellence – Rewards for innovations ultimately implemented by the TLC would include

an evaluation of both financial awards (cash and non-cash awards, such as additional vacation days)

and recognition (letter from Executive Director or Charitable Bingo Director (as applicable), mention

in newsletter, certificate of merit, etc.).

The TLC would monitor both the cost of administering this program and the incremental contributions

to the Foundation School Fund generated as a result of employee-submitted innovations.

Action Plan #22 – Continually reassess the effectiveness of TLC’s organizational structure, outsourc-

ing support functions where appropriate.

With 325 FTEs, 12 divisions and annual sales approaching $3.5 billion, the TLC is a highly leveraged

organization in terms of its productivity and use of strategic outsourcing. As such, achieving an optimal

organizational structure and balance of in-house vs. outsourced capabilities is a continuous process of

refinement.

There are two areas of focus for this action plan:

1. Management and oversight of cross-divisional committees and work programs.

The TLC has made a commitment to cross-divisional participation in the development of agency pro-

grams and ongoing research. However, the number of committees currently in place is significant and is

anticipated to grow through the formalization of a number of the action plans that make up the business

plan. Accordingly, the TLC is committed to an organized oversight function that will (a) monitor the

schedules and timelines of committees approved by division directors and (b) report on the timely pro-

gression of these projects to executive management and interested division directors.

A current inventory of cross-functional/divisional workgroups will be maintained, and responsible direc-

tors will review ongoing cross functional/divisional projects on a quarterly basis to determine if an

expertise is needed to be added or taken away. By ensuring that (a) a director is assigned as a liaison for

every project, (b) each project has a designated project leader responsible for the success of the team’s

project, and (c) team members will continue to be selected from a variety of staff levels and divisions to

ensure diversity of ideas and expertise. The TLC expects to continue achieving greater performance from

its teams and enhanced employee satisfaction and personal growth through committee participation.

Comprehensive Business Plan 2005 – 2007

2. High-level, ongoing organizational structure review and outsourcing opportunities review.

Executive management will evaluate two approaches—an event-driven approach and a standard timeline

approach—to reviewing optimum organizational structure. Division directors have an ongoing responsi-

bility to review their organizational structure and propose changes that will benefit the agency whenever

they arise, including the evaluation of opportunities to outsource functions. These reports and recom-

mendations will continue to be evaluated by executive management as they become available.

Strategy #8 – Enhance professional development initiatives within the TLC.

Leading organizations continuously invest in the professional development of their people to provide

quality leadership throughout their organizations and dependable sources of executive talent. The

TLC will enhance existing training and development programs administered by its Human Resources

Division to ensure that TLC employees have opportunities for professional growth within the TLC

that match their career ambitions.

Action Plan #23 – Develop a mentoring program within the TLC.

Mentoring, the process through which a more experienced employee provides ongoing career advice and

counseling to another, happens informally in every organization. However, many organizations have

found that formalizing mentoring relationships yields more consistent and predictable results, promotes

inclusiveness and diversity, and contributes to the professional development and overall job satisfaction of

employees. In FY 2005, the TLC will evaluate implementing a formal mentoring program for employees

who elect to participate.

A formalized program would be designed and administered by the TLC’s Human Resources Division. A

successful program would likely include the following characteristics:

Equal Opportunity – The program will be accessible to those TLC employees that wish to participate;

should management decide to limit participation due to resource constraints, restrictions will be applied

consistently and equitably.

Strategic Alignment – The investment in a mentoring program is only justifiable if the product—a more

experienced, knowledgeable and focused team—yields improved operating results and incremental con-

tributions to the Foundation School Fund.

Adequate Support – Those staff participating in the TLC mentoring program will need training, moni-

toring and support from H.R. staff to ensure the program is carried through in substance and not just in

form.

If a formalized mentoring program is developed and implemented, employee retention, job satisfaction

survey results and operations efficiencies are all potential success measures against which the success of

the program may be measured.

Texas Lottery Commission

P.O. Box 16630

Austin, Texas 78761-6630

Phone (512) 344-5000 • FAX (512) 478-3682