First Texas Hearing Reveals No Consensus To Act On Gambling In 2023

The Texas House State Affairs Committee opted Wednesday not to vote on any gambling-related legislation, including several proposals that would legalize statewide mobile wagering, after the first comprehensive public meeting held to discuss large-scale gaming expansion.

The committee met for a collegial and informative hearing at which one lawmaker quipped that maybe the Texas Rangers shouldn’t be considered a “professional” sports team and another asked counsel for the Dallas Cowboys if there was cap room for the team to acquire quarterback Aaron Rodgers. The more serious upshot was that committee members need more information before taking any action, as they have questions surrounding everything from tax rates to fees to tribal issues.

In particular, Rep. John Smithee repeatedly asked witnesses what the real value of a gaming license in the state would be. He suggested that given the state’s massive population and a limited number of licenses, the state could ask for as much as $20 million for a license — whether it be only for sports betting or for online casino gambling as well.

A standalone sports betting bill, HB 1942, and HJR 102, propose setting the application fee at $500,000 with a $100,000 per year renewal. For comparison, the initial licensing fee in New York, the biggest state with legal sports betting, is $25 million, which appears to be spread over 10 years.

In Massachusetts, the latest state to launch legal wagering, the licensing fee is $5 million and is good for five years. Texas has a population just over 30 million, while New York’s population is close to 20 million and Massachusetts’ is nearly 7 million.

HB 1942 also sets the sports betting tax rate at 10%, which is in line with many other legal wagering states, but when Smithee and others questioned if that rate was too low, bill sponsor Jeff Leach said both the fees and tax rate were open for negotiation — indicating he’s not completely committed to the provisions. Smithee went on to ask potential operators about the tax rate, including asking one if it would still operate in Texas if the rate were raised during the legislative process.

So much to learn …

The Texas hearing came on the same day that the Missouri House approved a statewide mobile betting bill and sent it to the Senate and that a North Carolina committee advanced a digital wagering bill. Both of those states have been discussing legal betting for more than three sessions.

In Texas, this is really the first legislative session in which wagering is being seriously discussed. In states where there is no initial consensus, it can take two or more sessions for discussion among lawmakers and stakeholders before a bill is passed, meaning wagering is unlikely to be approved in Texas before the May 29 adjournment date. Lawmakers would first have to choose which bill to advance — or rework one bill — and then move it through both chambers in a state that has traditionally opposed gambling, but which may be warming up to the idea.

For about six hours, the House State Affairs Committee heard from the usual suspects on the sports betting and gaming sides, including representatives from PENN Entertainment (Barstool Sportsbook), the Sports Betting Alliance (BetMGM, DraftKings, Fanatics, FanDuel), and Las Vegas Sands, which has been making a major lobbying push in the state. It also heard from horse racetracks, local gaming-related companies, religious groups, anti-gaming groups, and tribal representatives.

The only thing all could agree on is that black market wagering is already going on in the state.

“According to estimates here in Texas, more than $6 billion in wagers are placed illegally through offshore, unregulated betting platforms,” PENN Entertainment Vice President Eric Schippers testified. “In short, Texans are already wagering in this state, but it’s the off-shore online operators who are benefiting. Not a single tax dollar is being generated for important state programs and services, and not a single dime is going toward responsible gaming programs to protect against addicted gambling.”

The committee heard testimony on half a dozen proposals — two of which were joint resolutions to put the decision of legal gaming before voters in November. HB 1942 is a sports betting-only bill that would legalize only digital wagering, while HB 2843 would allow for the creation of “destination resorts” that would include brick-and-mortar Las Vegas-style casino resorts as well as sports betting. The wagering-only bill does not address horse tracks or the state’s three federally recognized tribes, while the destination-resorts bill does entertain locating resorts at existing horse tracks and would require the state to negotiate with tribes for gaming.

With regard to the tribes, the big hitch is that the state’s three tribes currently have compacted for Class II (slots) gaming in Texas, but they do not have a compact with the state for Class III gaming (full-fledged casino games). A representative from the Kickapoo Tribe suggested that lawmakers consider including a model compact for Class III gaming in the legislation, which she said would be approved by the Department of the Interior and would not require the tribes to negotiate with the state. Arizona lawmakers and tribes used a model compact during legalization.

The Kickapoo, whose reservation is located 150 miles southwest of San Antonio on the Mexico border, also asked that lawmakers consider allowing the tribe to acquire additional land closer to San Antonio to build a casino, should the legislation be approved. A decision to include this in legislation would be the first of its kind anywhere in the U.S. and could potentially be in conflict with federal law.

State could take in $180M in tax revenue

Both of the bills would limit the number of licenses available in the state. HB 1942 would cap the number of licenses available at about 15, which includes professional teams from Major League Baseball, Major League Soccer, the NBA, the NFL, the NHL, the WNBA, the PGA Tour and some auto-racing tracks. It’s not clear if each of the five PGA Tour stops would be able to partner with a platform, or if the PGA would get a single license.

HB 2843 would limit the number of gaming locations to seven — two each in the Dallas-Fort Worth and Houston areas and one each in the San Antonio, Corpus Christi, and McAllen metropolitan areas. That bill also requires casinos to make investments of up to $2 billion.

The tax rates in the bills differ, as the wagering-only bill would tax operators at 10% of gross revenue while the casino bill would tax gaming operators at 15%. For sports betting only, Chris Grove, a partner at research firm Eilers & Krejcik, said his firm projects that $2.37 billion in gross gaming revenue for Texas operators, potentially netting the state $180 million in tax revenue.

Both bills set aside funds for responsible gaming programs. In particular, HB 1942 earmarks 2 percent of state revenue for such programs, which are key concerns for many who testified.

According to written testimony from consultant Brianne Doura-Schawhol on behalf of the National Council on Problem Gambling, Texas currently ranks tied for last in the U.S. in terms of how much states set aside to deal with gambling addiction. The NCPG also asked that because responsible gambling services are not currently funded in the state, that the legislature provide “seed” money to start programs and that it set a floor of $15 million per year for such programs if 2 percent of tax revenue is less than that.

“NCPG believes that because the legislature included most of our suggested legislative language shared last year, and with only a few minor changes, Texas can take a substantial step in creating a safe and sustainable sports gambling environment for its residents,” Doura-Schawohl said.

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