Massachusetts State Lottery Commission

150 Mount Vernon Street, Suite 300 Dorchester, Massachusetts 02125 Tel: (781) 849-5555 Fax: (781) 849-5546 TTY: (781) 849-5678

Meeting Minutes

DATE: Thursday, October 24, 2019

TIME: 10:30 a.m.

MEMBERS PRESENT: Deborah Goldberg, Treasurer and Receiver General Meghan Liddy, Commissioner Andrew W. Maylor, Comptroller Anthony Salvidio, Commissioner (Remotely) Spencer Lord, Special Counsel, Executive Office of Public Safety and Security, designee of Secretary Thomas A. Turco III

ALSO PRESENT: Michael Sweeney, Executive Director, Lottery David Falcone, Chief Operating Officer, Lottery Ed Farley, Chief Marketing Officer, Lottery Didier Bertola, Chief Financial Officer, Lottery Judy Moore, Senior Executive Assistant, Lottery Gregory Polin, General Counsel, Lottery Christian Teja, Director of Communications, Lottery

Joshua Fredette, Senior Program Engagement Manager, Overture Partners, LLC Danny Bogus, Digital Consultant, Overture Partners, LLC

Jeffrey Shapiro, Esquire, First Deputy Comptroller, Chief Operating Officer, Office of the Comptroller

Sarah Kim, General Counsel, Treasury Chandra Allard, Chief of Staff, Treasury Lizandra Gomes, Deputy Chief of Staff, Treasury Alethea Harney, Communications Director, Treasury Emily Kowtoniuk, Deputy Legislative Director, Treasury Andrew Napolitano, Deputy Communications Director, Treasury Kathi Reinstein, Director of Policy & Legislative Affairs, Treasury

Martha Goldsmith, Director, Office of Leasing and State Office Planning, Division of Capital Asset Management and Maintenance (DCAMM) 1

Debbie Russell, Project Manager, Division of Capital Asset Management and Maintenance (DCAMM)

Maggie Cohen, Kearney Donovan and McGee Phil Wettengel, O'Neill and Associates Robert Frasca, Interested Member of the Public

I. Opening of Meeting

Treasurer Deborah Goldberg opened the Commission meeting at 10:41 a.m. Treasurer Goldberg stated, “pursuant to the Commonwealth’s Open Meeting Law, Massachusetts General Laws, Chapter 30A, Section 20, as the Chair of the Massachusetts State Lottery Commission, I would like to advise that any person may make a video or audio recording of this open meeting. However, I am obligated to inform attendees of any recording at the beginning of the meeting, so I ask that those who are making any recording identify themselves now as doing so.” Judy Moore, Senior Executive Assistant, Lottery, identified herself as recording to assist in the preparation of the meeting minutes.

Treasurer Goldberg informed the Commission that Commissioner Anthony Salvidio was unable to be physically present at the meeting. Treasurer Goldberg then made the following statement: “Pursuant to the Massachusetts Open Meeting Law, Massachusetts General Laws, Chapter 30A, section 20, Commissioner Anthony Salvidio will be participating remotely for this meeting because his physical attendance is unreasonably difficult.

The Lottery Commission’s by-laws allow for remote participation when a quorum of the members are physically present at the meeting location and a quorum of the Commission is physically present at the meeting location today.

Commissioner Salvidio is participating by telephone. Commissioner, if at any time we are not clearly audible to you, please let us know. Commissioner Salvidio may participate in any votes scheduled to take place at today’s meeting. All votes must be taken by roll call.”

II. Approval of the Minutes from September 25, 2019

Treasurer Goldberg asked the Commission to accept the minutes from the Massachusetts State Lottery Commission (“Commission”) meeting held on September 25, 2019. Commissioner Andrew Maylor made a motion to accept the minutes of the meeting and Special Counsel Spencer Lord seconded the motion. Treasurer Goldberg, recognizing there was no further discussion, took a roll call vote.

Treasurer Goldberg asked the Commission all those in favor: Commissioner Andrew Maylor: yes; Commissioner Anthony Salvidio: yes; Commissioner Meghan Liddy: yes; Special Counsel Spencer Lord: yes; and, Treasurer Goldberg: yes. The motion carried 5-0.

The minutes were approved at 10:44 a.m.

III. Executive Session

Treasurer Goldberg announced that the Commission would be moving into Executive Session. Treasurer Goldberg stated, “pursuant to Massachusetts General Laws, Chapter 30A, 2

Section 21, Purpose 6, I seek a motion for the Commission to enter into Executive Session, to consider the purchase, exchange, lease or value of real property.”

Treasurer Goldberg asked the Commission for a motion to enter into Executive Session. Commissioner Maylor made a motion to enter into Executive Session and Commissioner Special Counsel Lord seconded the motion.

Treasurer Goldberg took a roll call vote. Special Counsel Spencer Lord: yes; Commissioner Maylor: yes; Commissioner Salvidio: yes; Commissioner Liddy: yes; and Treasurer Goldberg: yes. The motion carried 5-0. The Commission moved into Executive Session at 10:44 a.m.

Treasurer Goldberg stated that the Commission would reconvene in open session at the end of the Executive Session.

At 11:55 a.m., the Commission reconvened in open session.

DCAMM Director, Office of Leasing and State Office Planning, Martha Goldsmith, DCAMM Project Manager Debbie Russell, and Lottery Chief Operating Officer David Falcone left the meeting after the Executive Session.

IV. Executive Director’s Report a. Sales Update b. Marketing Update

Fiscal Year 2019 – Final Statement of Operations

Executive Director Michael Sweeney began the report by reviewing the final statement of operations for Fiscal Year 2019 (“FY19”) and announced that it continues to be a good story. He reported on record setting net profits of $1.104 billion, as well as record profits in revenues, prizes paid to customers and commissions and bonuses earned by retailers.

Recent Editorial - Lottery holds up well to new competition, October 11, 2019

Executive Director Sweeney thanked the Commission as well as the team at the Lottery regarding a recent Mass Live editorial. He stated that it’s not often that a publication cites a governmental agency as being one of the most well-run and successful operations in the Commonwealth. He added that it doesn’t happen by accident, it happens with the leadership of the Commission and Treasurer that allows the Lottery to take some operational risks. This has positioned the Lottery to have this type of success during the last five years.

Lottery Sales Update

Executive Director Sweeney reported that the overall sales for September 2019 were up $7.6 million in comparison to September 2018. He noted that the estimated September 2019 net profit and prize payout figures do not include accruals for prizes won that have not yet been paid. Due in part to a $15 million increase in overall prizes paid ($303 million in September 2019 as compared to $288 million in September 2018), and a combined $3.9 million decrease in Mega Millions and Powerball sales in September 2019 as compared to September 2018, the estimated net profit for September 2019 was $67.9 million as compared to $77.5 million in September 2018, resulting in an estimated $9.6 million decrease in net profit. The estimated prize payout for September 2019 was 75.52 percent, as compared to 72.91 percent in September 2018. Executive Director Sweeney explained that this was very high and beginning to show the full momentum

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and manifestation of the constant hitting of the Powerball and Mega Millions jackpot, which will negatively affect the profit margin. He stated that in comparison to instant ticket sales, draw games, particularity these two games, are the higher profit games for the Commonwealth as well as for all lotteries.

Executive Director Sweeney reported on the figures for Fiscal Year 2020 (“FY20”). He stated that the FY20 year-to-date net profit and prize payout figures both include accruals for prizes won that have not yet been paid. Due in part to a $14.9 million increase in prizes paid in the first three months of FY20, compared to the first three months of FY19 ($957.1 million in FY20 compared to $942.2 million in FY19), and a combined $18.3 million decrease in Mega Millions and Powerball sales (Mega Millions: $14.6 million decrease, Powerball: $3.7 million decrease) in the first three months of FY20, compared to the first three months of FY19 as a result of smaller jackpots, the estimated year-to-date net profit for the first three months of FY20 is $241.9 million compared to $259.7 million for the first three months of FY19. After adding a 1-day average net profit figure of $2.7 million, due to a shift in the calendar that resulted in 1 less day being included in the net profit figure for the first three months of FY20, the adjusted year- over-year change for the first three months of FY20 versus the first three months of FY19 is an estimated $15.1 million decrease in net profit. The estimated year-to-date prize payout for the first three months of FY20 is 73.96 percent, as compared to 72.81 percent for the first three months of FY19.

Instant Ticket sales were up $8.0 million, Keno sales were up $3.2 million, Megabucks Doubler sales were up $227,076 (high jackpot of $5.4 million compared to $2.9 million in September 2018), and Mass Cash sales were up $280,152.

Compared to September of 2018, Mega Millions sales were down $2.1 million (high jackpot of $227 million compared to $336 million in September 2018), Powerball sales were down $1.8 million (high jackpot of $80 million compared to $213.4 million in September 2018), All or Nothing sales were down $130,588, Numbers Game sales were down $41,766, and Lucky for Life sales were down at $15,644.

Five Year Comparison Chart

The prize payout percentage was at 73.9 percent through September. Executive Director Sweeney reported that the prize payout as a percentage of sales tells the entire story.

Gross Sales Results

Discussing both the Gross Sales Results chart, September FY20 versus FY19 Unadjusted Non-Fiscal Year, and the Year to Date FY20 versus FY19, Executive Director Sweeney reported that sales were up 1.9 percent through September, but heavily weighted down by just about $4 million in negative sales through Mega Millions and Powerball.

Reporting on the year-to-date gross sales results, Executive Director Sweeney stated that sales were basically even through the end of September. He believed this was remarkable considering that Mega Millions had a $14.6 million gap in sales during the first three months of the fiscal year and a Powerball negativity of $3.7 million. He predicted that the total revenue sales for next month would show a further decline, driven by Powerball and Mega Millions.

Multi-State Game Jackpots since July 1, 2019

Executive Director Sweeney elaborated on one of the key components driving lower profitability, as well as a decrease in anticipated sales. The jackpots for Mega Millions and

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Powerball have been between $50 million to $150 million for the past three months. He explained that the very slow climb in these multi-state games are the result of the jackpots being hit frequently.

The Lottery at the Big E

Executive Director Sweeney provided details on the success at the Big E, which is the largest fair in the Northeast and the fifth-largest fair in the nation. He reported that over the last four years under the Treasurer’s direction, the Lottery has made a lot of adjustments. Michael Lanava, Assistant Director and Regional Manager for Worcester and Springfield, along with his team, once again did a phenomenal job of revamping the presentation. He reported that there was an eight percent increase in sales. He attributed some of the success to the better weather, but most of the success came from continued improvements and the efforts of Assistant Director Lanava and the Springfield team.

University of Massachusetts (“UMass”) Community Salute Partnership

Executive Director Sweeney reminded the Commission that the Lottery has been working towards establishing a branding presence in Western Massachusetts (“Mass”). He described a successful partnership with UMass and reported on the Community Salute program. He explained that this program was a replication of a similar program, Heroes Among Us, done between the Lottery and the Boston Celtics. The UMass Community Salute program has been well received and honors extraordinary individuals, such as teachers and firefighters, who have made exceptional and lasting contributions to the UMass and greater Western Mass communities. He concluded that this has been a great partnership at a low cost.

Recent Grand Prize Winners

Reminding the Commission that the individuals who engage in Lottery products come from a wide range of different educational and professional backgrounds, Executive Director Sweeney provided a snapshot of recent grand prize winners. The winners ranged in a variety of demographics and occupations, proving that Lottery customers are a reflection of the community not just throughout the Commonwealth, but also from the surrounding states.

Holiday Instant Tickets Release (October 22, 2019)

Executive Director Sweeney provided a sales update on the holiday instant ticket release that occurred on October 22nd. He stated that the tickets feature a lot of strong themes, particularly the $10 Merry Money Blowout and the $2 Frosty the Doughman. He praised the Lottery marketing team for doing a remarkable job and was confident that sales would be robust.

Promotions

Executive Director Sweeney reported on several promotions, including a VIP Club Holiday Promotion where Red Carpet VIP members have the chance to win from $1,000 to $10,000 in cash prizes. He stated that this is one of the Lottery’s strongest sale seasons, with a focus on promotion and consumer engagement.

By entering non-winning Winter Ice, Frosty the Doughman, and/or Merry Money Blowout tickets, individuals can earn entries into a drawing. Up to twenty-eight winners will be randomly selected by the Lottery from all eligible entries. The promotion period will run from Tuesday, October 22, 2019 to Tuesday, January 7, 2020.

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Executive Director Sweeney also reported on the Season Ticket Holiday Discount Period. The Lottery will be offering a discount on Season Tickets purchased from November 17th through January 4th. Season Tickets are available for Lucky for Life, Mass Cash, Mega Millions, Megabucks Doubler, and Powerball. As an extra incentive, every Season Ticket bought or renewed during this discount period and registered by February 8, will also be entered into a drawing to win $1,000. Twenty $1,000 prize winners will be selected.

Other promotions include a Holiday Agent Incentive and a Keno and All of Nothing “Lucky 3s” Promotion.

Social Media Messaging

Executive Director Sweeney reported that the Lottery continues to be aggressive in utilizing social media interaction to connect with players. Executive Director Sweeney presented examples of recent strategies employed on Twitter, Facebook, and the promotion of responsible play on Instagram.

V. Update Regarding Information Technology

Executive Director Sweeney described the IT Modernization Program as one of the Lottery’s most significant challenges. He provided an update to the Commission on the challenges over the last couple of years.

He reminded the Commission that the Lottery upgraded a new host system that will require new and evolving skillsets as well as additional training. As the Lottery expands, training will be ongoing. There has been a high level of internal IT staff attrition and this affects the pool of potential applicants that the Lottery is competing for. This can create business knowledge gaps and the Lottery is making sure to document as much as possible to have information transferred both within the Lottery and with the private sector vendors. Executive Director Sweeney explained that all of this is being driven by a business shift to a digital presence, which requires a budget buildout to reflect technical operations such as hiring, training, and supplemental support from the outside.

To keep the Lottery current, relevant, and able to produce revenue over the next five years, the budget numbers need to be reexamined. The IT team, along with the budget team, will be submitting a higher budget request this year to the Commonwealth that will also be presented to the Commission. This will focus on the tech needs of personnel and supplemental outside vendors, as well as the needed software and hardware to move the Lottery in the right direction for modernization. There will be a lot of training. Human Resources and the IT team have been updating the job description for a number of months. Executive Director Sweeney explained that the job description needs to be more reflective of the Lottery’s actual technical and personnel needs. The Lottery has been attempting to hire full time employees with industry expertise, but it has been challenging. Potential hires have been taking different positions right before or right after they’ve been offered a position with the Lottery. Either they feel they’ve found a better position, they’re able to work remotely, or the shift wasn’t compatible. The Lottery is trying to develop a more agile IT module to be able to increase the player base through a digital platform, as well as looking to build out a cashless opportunity. All of this will require a very heavy tech budget, tech needs, and personnel training, but it has been difficult to attract and retain people.

Reporting on the accomplishments to date, Executive Director Sweeney commented on the agent terminal rollout which was completed ahead of schedule. He remarked on the great partnership with the Massachusetts Commission for the Blind and the conversion of the Legacy

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host and hardware upgrades that are responsible for $5 billion a year in revenue. This was done with no downtime, currently under budget and on time. He also reported on a good relationship with the Executive Office of Technology Services and Security in reassessing the internal IT structure. The Lottery has also just developed, tested and launched a new Keno-To-Go and All of Nothing application that is reflective of customer expectations in the marketplace. The Lottery has also developed and tested a hands-on disaster recovery system for the Lottery Enterprise systems through virtualization technology, which has gone very smoothly.

Executive Director Sweeney reminded the Commission that October is Cyber Security month, which is one of the top ten threats for an organization. Often, errors and mistakes initiated by internal team members within an organization become breeches in the public sector that can take months or years to be discovered, at an enormous cost and disruption to the business. Over the last year and a half, the Lottery has focused and developed a game plan for this area. The Lottery has established a dedicated cyber team and has engaged in a series of testing with a number of industry leaders to get base line data and to make some internal adjustments. Although nothing is foolproof, the Lottery is trying its best to be in a position to avoid this type of situation. The Lottery is conducting risk mitigation activities such as a gap acceptance governance, a review of roles and responsibilities and cyber awareness training. These efforts will be ongoing.

Executive Director Sweeney shared with the Commission that almost 100 percent of the Lottery employees have completed a cyber-security training to make them aware of such things as malicious links. There were one or two employees who have not yet completed the training because they are out on leave. Executive Director Sweeney recognized that this is not a cure all but the Lottery is doing baseline training and education to mitigate risks.

Executive Director Sweeney announced that the Lottery has a very robust plan for digital modernization and asked Senior Program Engagement Manager Joshua Fredette and Digital Consultant Danny Bogus, both of Overture Partners, LLC, to provide an update on the progress of the Lottery’s mobile app. Senior Program Engagement Manager Joshua Fredette introduced Digital Consultant Danny Bogus, who launched the Michigan State Lottery iLottery. Program Engagement Manager Fredette described it as the most successful iLottery in the country. Digital Consultant Bogus is using his strategies to help the Massachusetts State Lottery build out its foundation for a digital storefront. Digital Consultant Bogus provided an overview and a video on a brand new gaming experience for Keno-To-Go. The application has been out for a few weeks and the team has been gathering feedback. He mentioned that there has been a slow release. Therefore, there has been about 20 percent adoption of current players who have migrated over creating a lot of instrumentation around the app. This will enable the team to get good data and analytics that is informing what will need to be done next. The design team has been working on a mobile first web portal, as the current masslottery.com website is desktop oriented. This will be the next initiative of the team. Digital Consultant Bogus announced that on the heels of the IOS soft launch is a micro site that will have all the to-go games in a mobile optimized format, which will be available in mid-November. There is also an android application that will mirror the functionality in IOS 2. Digital Consultant Bogus then showed a video with sound and animation. He said a lot of gamification thought went into the design to make it a lot of fun for the players. He wanted to be clear that players are still purchasing their tickets as retail and by entering the ticket information on the app it continues the game experience. The team is working on the next set of features, taking feedback and putting it into the future development.

Executive Director Sweeney described this as a big win with great feedback and part of the direction that the Lottery is moving in. He noted that there are a lot of challenges in front of the Lottery that are being addressed as rapidly as possible.

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VI. Matters Requiring Approval of the Massachusetts State Lottery Commission

VOTE (1): For the reasons set forth in the attached memorandum dated October 17, 2019, the Executive Director is hereby authorized to encumber and expend an additional three hundred sixty thousand dollars ($360,000.00) for its existing contract through ITS63 with McInnis Consulting Services Inc., located at 100 Prospect Street, Norwell, MA 02061, for the consulting services of subject matter experts with the following firms to provide information technology expertise:

NTT Data Services 100 City Square Charlestown, MA 02129

Rolta AdvizeX Technologies, LLC 3 Burlington Woods Drive, Suite 206 Burlington, MA 01803

At previous meetings, the Commission authorized the encumbrance of two million, six hundred thousand dollars ($2,600,000.00) for these services. The aggregate total maximum obligation assumed hereunder shall be two million, nine hundred sixty thousand dollars ($2,960,000.00).

Commissioner Liddy made a motion to authorize the Executive Director to encumber and expand the funds and Commissioner Salvidio seconded the motion.

Executive Director Sweeney explained that this is the last piece of the capital funding that the Lottery had been previously approved for. It mirrors the prior votes that were approved last summer. This is continuing some of the efforts previously discussed in the IT presentation and includes everything from Cyber Security to the on-going modernization of the Lottery system and Lottery games.

Treasurer Goldberg, recognizing there was no further discussion, took a roll call vote.

Treasurer Goldberg asked the Commission all those in favor: Commissioner Maylor: yes; Commissioner Salvidio: yes; Commissioner Liddy: yes; Special Counsel Lord: yes; and, Treasurer Goldberg: yes. The motion carried 5-0.

VII. Other Business – Reserved for matters the Chair did not reasonably anticipate at the time of posting

After asking if there was any other business to discuss, Treasurer Goldberg sought a motion to adjourn the meeting. Commissioner Maylor moved to adjourn the meeting and Commissioner Liddy seconded the motion.

Treasurer Goldberg took a roll call vote.

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Treasurer Goldberg asked the Commission all those in favor: Commissioner Maylor: yes; Special Counsel Lord: yes; Commissioner Salvidio: yes; Commissioner Liddy: yes; and, Treasurer Goldberg: yes. The motion carried 5-0.

The meeting adjourned at 12:26 p.m.

List of Documents and Exhibits Used:  MSLC October 2019 Commission Meeting Book  MSLC Meeting Executive Director’s Report, October 24, 2019 – PowerPoint Presentation  MSLC – Technical Overview – PowerPoint Presentation  Video demonstrating Keno-To-Go and All or Nothing app

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