STATE OF CALIFORNIA TRANSCRIPT OF PROCEEDINGS CALIFORNIA STATE LOTTERY COMMISSION COMMISSION MEETING TIME: 10:04 a.m. DATE: Thursday, May 27, 2021 PLACE: Held remotely consistent with Executive Orders N-25-20 and N-29-20 using the Microsoft Teams platform Transcription Service: Martha J. Hanna Foothill Transcription Company 9328 Elk Grove Blvd., Suite 105-309 Elk Grove, California 95624 (916)443-7400 1 California State Lottery Commission Meeting May 27, 2021 --oOo-- A P P E A R A N C E S California State Lottery Commission Gregory Ahern Chair of the Commission Commissioner Peter Stern Vice Chair of the Commission Commissioner Nathaniel Kirtman, III Commissioner Keetha Mills Commissioner Participating Lottery Commission Staff Alva V. Johnson Director Fernando Aceves Chief Counsel Duane Tadlock Supervising Lottery Agent of Security and Law Enforcement and Jorge DeLaCruz Assistant Deputy Director of Public Affairs & Communication Jim Hasegawa Deputy Director of Business Planning Nicholas Buchen Deputy Director of Finance Sharon Allen Deputy Director of Sales and Marketing 2 California State Lottery Commission Meeting May 27, 2021 Jennifer Chan Deputy Director of Information and Technology Services Sara Sheikholislam Deputy Director of Internal Audits Elisa Topete Assistant to the Commission --oOo-- I N D E X Description Page 1. Call to Order 4 2. Pledge of Allegiance 4 3. Roll Call of Commissioners 4 4. Consider Approval of the Agenda 4 5. Approval of the Minutes of the March 25, 2021 Commission Meeting 5 6. DIRECTOR’S REPORT: a. Director’s Comments 6 b. Lottery’s COVID-19 Support Efforts 10 c. Draft Fiscal Year 2021-22 Business Plan 14 d. Draft Fiscal Year 2021-22 Budget 38 7. CONSENT CALENDAR 52 8. ACTION ITEMS a. Regulation Changes to Powerball® Game 52 b. Public Website Contract Extension 56 c. Extension and Addition of Funds to the KPMG LLP Draw Auditing and Review Services Contract 60 9. COMMISSIONER GENERAL DISCUSSION 62 10. Scheduling Next Meetings-June 24, 2021 64 3 California State Lottery Commission Meeting May 27, 2021 11. Public Discussion 64 12. Adjournment 64 --oOo-- 4 California State Lottery Commission Meeting May 27, 2021 1 Thursday, May 27, 2021 2 Sacramento, California 3 --oOo-- 4 CHAIR AHERN: Then we’ll call the meeting to 5 order, and we’ll start with the Pledge of Allegiance, so if 6 you would please stand and join me? I think we have a flag 7 coming up. There we go. And together. 8 (The Pledge of Allegiance was recited.) 9 CHAIR AHERN: All right, thank you. Will the 10 Secretary please call the roll? 11 MS. TOPETE: Commissioner Kirtman? 12 COMMISSIONER KIRTMAN: Here. 13 MS. TOPETE: Commissioner Stern? 14 COMMISSIONER STERN: Here. 15 MS. TOPETE: Commissioner Mills? 16 COMMISSIONER MILLS: Present. 17 MS. TOPETE: Chairman Ahern? 18 CHAIR AHERN: Here. Okay. We have a quorum, and 19 we’ll move on to Item Number 4, which is the Approval of the 20 Agenda. Commissioners, does anyone want to suggest any 21 changes to today’s agenda in any respect? 22 COMMISSIONER KIRTMAN: No. 23 CHAIR AHERN: Hearing none, then we’ll hear a 24 motion to adopt the agenda. 25 COMMISSIONER KIRTMAN: Motion to adopt. 5 California State Lottery Commission Meeting May 27, 2021 1 CHAIR AHERN: We have a motion, and is there a 2 second? 3 COMMISSIONER STERN: Second. 4 CHAIR AHERN: A motion and a second. Will the 5 Secretary please call the roll? 6 MS. TOPETE: Commissioner Kirtman? 7 COMMISSIONER KIRTMAN: Yes. 8 MS. TOPETE: Commissioner Stern? 9 COMMISSIONER STERN: Yes. 10 MS. TOPETE: Commissioner Mills? 11 CHAIR AHERN: (Inaudible). 12 MS. TOPETE: Chairman Ahern? 13 CHAIR AHERN: Yes. Tom? 14 MALE: (Inaudible). 15 CHAIR AHERN: Okay. I’ll move on to Item Number 16 5, which is the Approval of the Minutes. Are there any 17 corrections to the minutes? 18 COMMISSIONER KIRTMAN: No. 19 CHAIR AHERN: Okay. Do I hear a motion to 20 approve the minutes for March 26, 2021 Commission Meeting? 21 COMMISSIONER KIRTMAN: Motion to approve the 22 minutes. 23 CHAIR AHERN: We have a motion. Is there a 24 second? 25 COMMISSIONER MILLS: Second. 6 California State Lottery Commission Meeting May 27, 2021 1 CHAIR AHERN: Motion and a second. Will the 2 Secretary please call the roll? 3 MS. TOPETE: Commissioner Kirtman? 4 COMMISSIONER KIRTMAN: Yes. 5 MS. TOPETE: Commissioner Stern? 6 COMMISSIONER STERN: Yes. 7 MS. TOPETE: Commissioner Mills? 8 COMMISSIONER MILLS: Yes. 9 MS. TOPETE: Chairman Ahern? 10 CHAIR AHERN: Yes. All right. Next item is Item 11 Number 6, and it’s for Informational Items. We’ll call on 12 Director Alva Johnson to report. 13 DIRECTOR JOHNSON: Okay, very good. Thank you, 14 Mr. Chairman. I’m just going to wait a moment for the 15 PowerPoint to load up to the screen. Okay, here we go. 16 Let’s go to the first slide. Thanks very much. 17 Commissioners, we are very pleased to report total Lottery 18 sales through Saturday, May 15th are over $7.3 billion. This 19 is 19 percent above the sales goal and 30 percent higher 20 than Lottery sales over the same time period last fiscal 21 year. The annual sales goal for this fiscal year is $7.12 22 billion, so even with a month-and-a-half left in the year, 23 we have already exceeded our annual sales goal by $200 24 million. Scratchers continue to exceed expectations, with 25 distribution sales over $5.5 billion through mid-May. This 7 California State Lottery Commission Meeting May 27, 2021 1 is 19 percent ahead of goal and 31 percent over last fiscal 2 year’s sales. Scratchers set another new record during 3 April, surpassing $150 million in a single week for the 4 first time in its history. Weekly Scratchers sales in the 5 past two months since the last Commission meeting have 6 averaged over $140 million, thanks to continued strong sales 7 at the $10, $20 and $30 price points, as well as the new 8 Monopoly game’s launch at the end of March. Scratchers 9 sales have already surpassed the full annual sales goal of 10 $5.4 billion and are already a new fiscal-year record. The 11 prior record of $5.17 billion was set two years ago in 12 Fiscal Year 2018-19. The multi-state games, which include 13 Powerball and Mega Millions, had year-to-date sales close to 14 $850 million, pacing 25 percent ahead of goal and 48 percent 15 higher than last fiscal year. Both games are outperforming 16 their goals due to high-rolling jackpots. Powerball has 17 seen five jackpots over $400 million so far this year, while 18 last fiscal year never saw a jackpot over $400 million. So 19 far this year, Mega Millions sales of $483 million make up 20 57 percent of the multi-state game category sales. In 21 January, this jackpot rolled to $1 billion, creating much- 22 needed excitement and interest for the jackpot game 23 category. Since January, the jackpot games, including 24 SuperLotto Plus, have seen sales bounce back to pre-pandemic 25 levels. Mega Millions is once again boosting sales and 8 California State Lottery Commission Meeting May 27, 2021 1 contributions to Education, as this jackpot rolls to $515 2 million. Last Friday, one ticket sold in Pennsylvania 3 matched all six numbers to win the jackpot. Through mid-May, 4 sales for California’s in-state jackpot (inaudible), 5 SuperLotto Plus, are seven percent higher than goal and last 6 year’s sales. This game greatly benefited from the 7 increased traffic for Mega Millions back in January. 8 However, SuperLotto Plus jackpots are growing at levels not 9 seen for this game in two years. For the month of April, 10 SuperLotto Plus sales were even higher than Powerball sales, 11 despite Powerball having significantly larger jackpots. The 12 Daily Games, which include Daily 3, Daily 4, Fantasy 5, and 13 Daily Derby, continued to see strong sales this fiscal year. 14 Combined, these games are running 13 percent above goal and 15 14 percent higher than last fiscal-year sales through this 16 time. These games had continued to appeal to Lottery 17 players throughout the pandemic, showing new promise for 18 these games in the years to come. Finally, Hot Spot sales 19 through mid-May are over $320 million. Fiscal-year sales 20 are at 15 percent above goal and 19 percent higher than last 21 fiscal year. At this time last year, the statewide shutdown 22 at many bars and restaurants greatly stunted Hot Spot sales, 23 yet since then, sales have returned and even exceeded their 24 pre-pandemic levels. We will further elaborate on this 25 phenomenon in a few minutes during the Draft Business Plan 9 California State Lottery Commission Meeting May 27, 2021 1 presentation later on in the agenda. Next slide, please. 2 We also assess how the Lottery is performing in 3 terms of its most important measure, the contributions to 4 public education. These figures are based on the Lottery’s 5 monthly cumulative financial sales report through April 30th. 6 Over the first ten months of the fiscal year, our sales were 7 running 19 percent ahead of its goal, while our 8 contributions to Education were about 22 percent ahead of 9 our goal over that same time period. Estimated 10 contributions to education through the first ten months are 11 over $1.45 billion. Next slide, please. 12 Total Lottery sales this year are on track to be 13 the highest-selling year in California Lottery history.