The House Committee on Licensing and Administrative Procedures met on June 7th to hear invited testimony regarding illegal gambling in the state of Texas, including efforts to reduce illegal gaming and the proliferation of unlawful game rooms and game rooms utilizing machines commonly known as “8-liners.” The archive video can be found here.
This report is intended to give you an overview and highlight of the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.
- Chair Thompson could not attend
Panel A: Gaming in Texas Overview
Gary Grief, Executive Director of Texas Lottery Commission
- Provides brief history of Texas Lottery, enacted by the Texas Legislature in 1991
- One main purpose of Texas Lottery is to ensure illegal gambling is not committed in Texas, including illegal gaming and unlawful game rooms
- Main two products are scratch tickets and draw games, scratch ticket sales are greater than all draw game sales
- Texas Lottery generated almost $2 billion in revenue in FY 2021 for veteran and school funds
- Ticket delivery services, or couriers, involve players purchasing tickets from 3rd party services, mainly apps; State lottery Act is silent on these services, state has no jurisdiction
LaDonna Castañuela, Director of Charitable Bingo Operations Division, Texas Lottery Commission
- Provides overview of the charitable bingo operation in Texas, approved by voters in 1980
- Important fundraising source for over 1,000 Texas nonprofit organizations; fraternal, religious, and veteran organizations are primary types of nonprofits
- State benefits from prize fees, FY 2021 included $20 million in revenue
- Complaints received go to Investigative Division, TLC has received 4 complaints in last 5 years
- Huberty – Would you view those online apps as an online form of gambling?
- Grief, Texas Lottery Commission – Not sure if I can opine, Texas Lottery walks a fine line on staying in our jurisdiction and these apps are not in our purview, only serial number and ticket number is communicated to the customer
- Huberty – Online apps should be regulated and that these apps are online gambling; what drove the high number of apps in Texas?
- COVID-19 played a factor, lottery was deemed an essential business and was one of the only entertainment options the public had
- Huberty – How much do you generate in revenue a year for education? A very small fraction of $66 billion, correct?
- $2 billion a year
- Huberty – These online apps are charging a fee, correct? Does the State get any of this fee?
- No and no
Amy Cook, Executive Director of Texas Racing Commission
- Provides overview of Texas Racing Commission, including racing and greyhound tracks and where laws can be strengthened to prevent illegal brush tracks
- Texas Racing Commission needs to be strengthened as the enforcement agency for illegal racing in Texas
- Believes that jurisdiction should be extended to the entire state, not only in the racetracks,
- Believes the statutory framework of the Texas Racing Act should be expanded
- Private racing is not illegal, but there are numerous health and safety risks
- Horse Racing and Integrety Act (federal law) goes into effect in less than a month, agrees with framework and needs help regulating
- Huberty – There is an app called MBet, can you speak briefly about this?
- An app that allows you to do mobile betting within the geofence of the racetrack, do not see an issue with this currently
- Huberty – Is this a for profit app? How do they make money?
- Subscription service the race park contracts with, can get more information for you
- Kuempel – Do you think this Committee would benefit from holding a hearing with the stakeholders in the horse racing industry?
Jennie Hoelscher, Division Chief of Opinions, Office of Attorney General
- Provides overview of charitable raffles in Texas
- Attorney General office has authority to seek injunctive relief if charitable organization is operating raffle outside of statute
- Provides overview of OG rules on enforcing illegal gambling
- Office does not have independent jurisdiction to enforce the penal code, local prosecutor must reach out to office for assistance
- Able to write opinions addressing the legal issues regarding illegal gambling
Panel B: Online Gaming
Scott Ward, Sports Betting Alliance
- Sports Betting Alliance represents several of top online gaming companies in United States, operates in 35 states
- Texas Legislature has not chosen to legalize sports betting
- Claims there is more sports betting in Texas than any other state other than California, $8.7 billion illegally bet in Texas every year, most on illegal offshore websites
- Most Texans do not know sports betting is illegal, has serious negative effects on state, FBI states illegal sports betting is a main source for identity theft
- Claims Texas is missing out on hundreds of million dollars in tax revenue from sports betting, revenue would come from online companies
- Advocates for legalizing and regulating sports betting in Texas by sending it to voters as referendum
- Kuempel – Has legalizing sports betting displaced the illegal sports betters?
- You will never get rid of the illegal market, but a significant percentage gets replaced with legal market
- Geren – Can you provide us with data on revenue and costs on sports betting for states?
- Yes, most states report monthly on revenue
- Huberty – What do you think could be generated revenue wise by legalizing?
- Illegal market is estimated at $8.7 billion currently, estimates in a mature market that $300 million in revenue from players, $80 million in revenue from taxes
- Huberty – Could be used for education, special education, shortage of staff in schools
Panel C: State Enforcement and Taxes
Justin Scott, Criminal Investigations Division, Comptroller of Public Accounts
- Provides overview of coin operated machine taxes in Texas, any machine where money is inserted for entertainment purposes
- Comptroller issues licenses to operators to machines, must have license from Comptroller office
- Two types of registrations and four types of licenses, provides overview
- Coin operating machine taxes go towards General Revenue Fund
- Harrison – What is the public interest that is being served by requiring a license for a machine?
- Aside from revenue generation, it is mainly just to provide overview and regulation
- Guillen – Does DPS track revenue from local cities and counties for coin operated machines?
- We do not track this statistic, but must be required to be licensed with the State as well
Joshua Thigpen, Comptroller of Public Accounts
- FY 19 criminal investigation unit assessed 381,858 penalties; 109,00 FY 2020 and 124k in FY 2021
- Filed 8 felony 2 cases throughout the state and referred 31 class A misdemeanors
Sharon Jones, Texas Department of Public Safety
- Brush Tracks are utilized for illegal racing; advertised by promoters on social media
- In one investigation there were 1k spectators at one of these events
- Are harmful to the horses used in these races; are rarely licensed veterinarians at these tracks
- If a person wagers in such a race, is difficult to link the horse racing and betting to those who oversee the racetrack
- Offence is a Class A Misdemeanor
- Racing without a license is also referenced in the occupational code
- Illegal game rooms are everywhere; are typically card and dice games
- Purchasing of alcohol or food is the “ruse” to gamble
- Assaults, firearms, distribution, and money laundering often occur at these game rooms
Panel D: Gaming Machines
Kevin Mullally, Gaming Laboratories International
- Provides overview of GLI, worlds largest testing agency for legal gambling, serves governments around the world
- Main machine used is an 8-liner, similar to a slot machine in a regulated casino
- No regulation means machines could be rigged to never release payouts, regulated devises are fully random and have mandatory minimum payouts
- Skill hybrid machines fear law enforcement presence, try to disguise machine with a skill feature and give player the illusion of control
- Sweepstakes machines, generally run by organized crime, connected to a server and contains no software, very hard to enforce by law enforcement
- Fish games are virtual aquariums, try to capture fish which can be converted to cash or prizes, again provides illusion of player control
- Tendency to confuse skill with chance is prominent issue
- Poker machines are game of skill, but could be rigged to where skill does not matter
- Unregulated gambling is making regulated gambling irrelevant
- Guillen – The testing you do on machines, can you do the same for gambling apps?
- Yes, we test many online apps; When we test machines, we test every aspect of software to ensure fairness, not possible with unregulated machines
- Huberty – Do you have any sense of the revenue of illegal gambling in Texas?
- I cannot confirm revenue; Texas’ gambling policy results in high amount of illegal gambling, the only way to control illegal gambling is to have a comprehensive policy regulating gambling
- Huberty – Illegal gambling is happening in Texas, you would agree with that?
- Yes, the concept of the “corner bookie” is not popular anymore, online illegal gambling has taken over so policy changes are needed to address the issue
Keith Sherer, Naskila Gaming
- Provides overview of difference between electronic bingo, offered by Naskila, and illegal 8-ball machines
- Slot machine has no community function, player plays against machine
- Electronic bingo machines require more than one player, all players are competing with other players and cannot function independently
- Federal Court in Abilene found Naskila’s electronic bingo is a bingo game (which is legal)
Panel E: Tribal Gaming in Texas
Rick Sylestine, Alabama-Coushatta Tribe of Texas
- Provides history of electronic bingo operation of the Alabama-Coushatta Tribe
- Federal court of appeals found tribe could not operate gaming under federal law, could only offer gaming that is legal in Texas
- Gained approval to open gaming from Department of Interior under Indian Regulation Gaming Act, opened Naskila in 2016, AG office filed lawsuit to shut down Naskila immediately, but court found it was legal
- 700 employees tied to Naskila gaming, $170 million in economic benefits annually delivered to East Texas region
- Advocates for keeping Naskila gaming open, warns of devasting effects of shutting down facility by state
Panel F: Bingo and Game Rooms
Steve Bresnen, Bingo Interest Group
- Applauds Lottery Commission in regulating online bingo, commission has been supportive of industry
- In 2019, 13.8 customers who played bingo in Texas (includes repeat customers), dropped to 11 million in 2021
- Customers are leaving bingo halls for cash playing illegal operations elsewhere, difficult for bingo industry to compete with illegal gambling
- AG ruled bingo cannot award cash
- While revenue went down in 2021, profits went up, resulting in more charitable donations; Believes this was due to stimulus checks
- State revenue from charitable bingo is almost equal to revenue for charitable organizations, would like to see state revenue scaled back a slight amount
- Emphasizes that online illegal gambling is hurting bingo, prevalent on Facebook
- Suggests to Committee to investigate the Common Nuisance Statute with the Attorney General’s Office, suggests this could result in serious penalties for operators of online sites
Steve Fenoglio, Amusement and Music Operators of Texas
- Available to act as a witness regarding 8-ball litigation
- No provided testimony
- Geren – 2nd court of appeals ruled 8-liners are illegal, but Supreme Court must decide, is that correct?
- That is mostly correct, Supreme Court must decide whether to take up case
Lee Woods, Amusement and Music Operators of Texas
- Provides overview of AMOT, trade group made up of mom-and-pop shops
- 8-balls operate under an exemption under Texas Code, cannot operate with cash
- Illegal operations generally operate in locked rooms who refuse entry to law enforcement
- Prosecution has been difficult, AMOT joined with Harris County 10 years ago to write legislation to grant the county the power to regulate illegal 8-liner machines
- Bill passed; many other bills granted power to regulate to many other various counties
- HB 892 (86R) expanded this power across the entire state
Daniel Hasse, Central Meadowbrook Neighborhood Association
- Provides overview of 8-liners on neighborhoods in Ft. Worth area
- Claims gaming operations invite crime and danger into neighborhoods
- Worth passed an ordinance outlawing 8-ball machines, 2nd court of appeals has upheld this ordinance
- Ordinance cannot address game rooms with 5 or less machines, state law states a game room must have more than 6 to be regulated
- Advocates for eliminating the “fuzzy-animal” regulation and the 6-machine rule in state statute
- Advocates for granting more power to the Comptroller’s office to regulate
Panel G: Local Enforcement and Prosecution
Jessica Anderson, Houston Police Department
- Provides overview of Harris County strategies on regulating illegal gambling
- Majority of investigations begin with a citizen complaint
- A game room is not technically illegal, but how a game machine is used is what determines legality
- Investigators enter game rooms to determine is machines are legal, then seize machines and seek prosecution if it is illegal
- Multi-pronged approach: city ordinances, penal code, Chapter 125 of Civil Code, Harris County Gaming Regulation
- Has found civil penalties are an inducement to get rid of illegal game rooms, has been a help
- Clandestine game rooms are primarily located in low socioeconomic areas
- 50% of convenience stores in Texas have some sort of illegal gaming device
- Harrison – What type of violations are you talking about when it comes to exceeding the $5 cap? How much money is coming out of illegal operations?
- Some game rooms are making $50,000 per illegal machine, hard to quantify
Scott Brumley, Potter County Attorney
- Provides overview of the issues prosecutors face regarding 8-liners and illegal gambling
- Have not been able to successfully utilize Chapter 125 of Civil Code, many of these operations in Amarillo are not taking place in locations that are financially attractive, not concerned with shutting down operations
- Amarillo PD vice department consists of 3 officers, do not have enough resources to investigate a gambling case
- Difficult for many reasons, gambling is very prevalent in Texas, not seen as a negative issue
- Mainly a cost benefit problem, gambling violations are mostly a misdemeanor charge
- To charge operators with felony charges, ample evidence is needed, and the resources are not there for that
- Illegal gambling has led to narcotics, weapons, and human trafficking
- End of the day, problem is resource allocation; law enforcement is poorly equipped to prove charges and juries are confused by statute to convict
- Violent crime takes precedent; Recommends making gambling violations a more serious offence
- Huberty – Increase offence to what? What would the fine be?
- In 1994, penalties were reduced to a misdemeanor, prior to that it was a 3rd degree felony, if an organized group was committing the crime, it was a 2nd degree felony
Brian Hawthorne, Sheriff, Chambers County
- From a Sheriff’s perspective, there is no good or benefit from how game rooms are operated in Texas
- A legal game room is simply legalizing something that provides no benefit for society
- Sheriffs are turning a blind eye, misdemeanor charges provide no benefit to charge or prosecute, and the “source” is often out of Texas
- Advocates for increasing gambling violations to a felony
- Game rooms lump the “problem children” in one spot
- Huberty – Are you differentiating game rooms from card rooms and poker room?
- Hawthorne – Card rooms are much different, they are selling seats; We do not see them as a big of a problem, but they might be as they gain popularity
- Anderson – Prevalent in Houston, we have not been as active with the card rooms, simply due to citizen complaints, less complaints with the card rooms
- Huberty – What tools do you need legislatively?
- Anderson – Agree with previous testimony, increasing punishment would help; Also notifying property owners of illegal activity, has worked with illegal massage parlors in Houston