The Houston Chronicle recently uncovered a broad “scheme” orchestrated by rich investors to all but guarantee a $95 million Lotto Texas jackpot.
The Chronicle’s reporting indicated that while the scheme violated no lottery laws, it did “raise questions about the rigor of [the Texas Lottery’s] oversight.”
Stories like this happening when they do–in the interim in the Texas legislative cycle–point to an important issue regarding Texas sports betting: sports betting legislation should not task the Texas Lottery with regulating the industry.
This is not an indictment of the Texas Lottery or an attempt to pile on. Instead, it is a reminder that the Texas Lottery, which sells the fourth most lottery tickets in the country, has enough on its plate.
What a legal Texas sports betting industry needs is a Texas Gaming Commission.
Previous sports betting legislation tagged the Texas Lottery as regulator
In 2023, House Bill 1942, which was filed by Rep. Jeff Leach and passed the Texas House, stated that “the most expeditious way to legalize sports wagering in this state and to strictly regulate this activity is to utilize the resources of the Texas Lottery Commission.”
The bill enumerated a range of responsibilities the TLC would manage under the umbrella of “establishing an interactive sports wagering program.”
During floor debate on HB 1942 and its partner, House Joint Resolution 102, the role of regulator did not receive attention from either proponents or opponents. Instead, opponents focused heavily on the moral aspect of the issue.
Whether the Texas Senate would have taken up the question of who should regulate Texas sports betting, we’ll never know. The Senate did not allow any sports betting legislation to get a committee hearing in 2023.
Texas Lottery already has a full plate
Fiscal Year 2023 produced record sales for the Texas Lottery: $8.7 billion to be exact, with $2.1 billion going to public education resources.
According to Texas Lottery financial reports, that total was up 5.2% from the previous year and 7.6% from the previous two years. The Texas Lottery currently runs 81 scratch-off games, which accounted for 77% of sales last year, and eight draw games, including the two big national draws: Powerball and Mega Millions.
For comparison, New York, the largest lottery in the country by sales, operates 111 scratch-off and 10 draw games, and it does not regulate the state’s sports betting industry. The New York State Gaming Commission does.
This year, the Texas Lottery is under a ten-year Sunset Review. This review will take place during the legislative session and assess the TLC’s viability at regulating both the state lottery and charitable bingo.
In May, the Committee filed a summary report on the TLC, which already took a highly critical stance on its practices.
They wrote,
“Having found a way to be successful at its most visible function, raising revenue, the agency [Texas Lottery Commission] has been unwilling or unable to adapt to a changing environment or fully embrace some of its regulatory responsibilities.”
The Sunset Committee noted a few areas where improvement was needed, but summarized the main issues with the TLC in this section heading: “The Agency’s Governing Body Is Not Adequately Engaged and Lacks Mechanisms to Ensure the Long-Term Success of the State Lottery and Charitable Bingo.”
This assessment came before the Chronicle ran its story.
Will the Sunset Committee look closely at the situation described by the Houston Chronicle? Absolutely. Will it consider that recent sports betting legislation proposed the TLC as regulator of the sports betting industry? Perhaps.
If the Sunset Committee were to consider the implications of the TLC regulating sports betting alongside its current duties, we would like to see them recommend against this.
The knock-on effect of the lottery-as-regulator
In the US, states take one of two routes to sports betting regulation: they create a gaming commission or hand over sports betting duties to the state lottery.
Jeremy Kudon, president of the Sports Betting Alliance, explained it like this to PlayTexas: “In other states, legal markets have been successful utilizing either a commission or lottery model. Ultimately, it’s a question for state leaders to choose what’s best.”
In smaller markets like Oregon and West Virginia where the lottery commission regulates sports betting, the regulation is manageable. In Oregon, there is a single sports betting operator: DraftKings. There are several in West Virginia, but it is a very small market.
The state-lottery-as-regulator model begins to lose efficiency in larger states with multiple operators. Take Virginia for example. It’s the 12th most-populous state, and it has a mature sports betting market, featuring more than a dozen operators. It also operates a state lottery.
For the past two years, the legislature has been pushing to create a Virginia Gaming Commission to remove sports betting from the purview of the Virginia Lottery. Several reasons have been cited for moving to a specific regulatory agency for sports betting and casinos.
First, lawmakers have noted gaps in the enforcement and oversight of sports betting regulations due to limited resources. This, in turn, has led to alleged corruption in charitable gaming enterprises.
Second, consolidating casino and sports betting under one agency creates a better framework for enforcement and compliance with regulations.
Heading south from Virginia, we have North Carolina, which launched sports betting in March. The North Carolina Education Lottery acts as regulator.
When North Carolina legalized sports betting, it took months from the time of legalization until the NC Lottery fielded a sports betting committee to begin proposing regulations. More than one year after legalization, regulators have yet to open two markets included in the state’s sports betting law: retail sportsbooks and advanced deposit wagering on horse racing.
Sports venues, which would have the opportunity to build retail sportsbooks under North Carolina’s sports betting law, are waiting for the green light, and so far the lottery hasn’t indicated that it’s forthcoming.
Sharing information with the public
Beyond the need for more effective regulation and enforcement, lotteries do not provide the same level of detail in their reporting on the industry.
A Virginia or North Carolina Lottery sports betting revenue report, represented by a one-page table, gives only the broadest overview of the market. In both states, the lottery commissions do not report data by operator, only the overall revenue generated across the entire market. Some state lotteries–Maryland, for instance–do.
Compare that with a revenue report generated by the Illinois Gaming Board or the Massachusetts Gaming Commission where operator data, betting data by sport, and a range of other metrics are presented, and the value of a gaming commission in providing information to the public is clear.
To be fair, public records laws come into play, and lotteries (and gaming commissions) might walk a fine line between public and proprietary information. These laws vary by state, but the public has a justifiable reason to know how much a sportsbook operating in their state is making, and gaming commissions are more likely to provide this info.
Lottery and sports betting are two completely different products
Listen to enough lottery commission and sports betting meetings and you realize that they run on different tracks.
Dustin Gouker, gaming industry analyst and author of The Closing Line substack, tells PlayTexas, “The lottery is a completely different product. Regulating that product requires a totally different approach than what a sports betting regulator would take.”
Indeed, the lottery is a physical product (in most cases). It requires a certain kind of marketing that sports betting does not.
In the case of scratch-offs, most lotteries’ biggest sellers, there’s the ticket itself. It’s a thing. It gets designed and printed. It’s got to catch people’s eyes and be intuitive enough for them to use without reading too many instructions.
Then there’s the marketing for lottery tickets. Point-of-sale materials, commercial campaigns, in-store kiosks, and billboards all serve to sell these products.
Lottery commission meetings deal heavily in the minutiae of how to design, build, and sell these mostly physical products, as well as who buys them and where. Moreover, these products expire and change, and so the lottery is regularly planning new ways to sell new and different products.
Sports betting regulatory meetings deal with how the betting public has already spent their money and how operators have already conducted their business. Lottery commissions and gaming control boards are not in the business of marketing and selling sports betting products in the same way they are in selling lottery tickets. They are in the business of oversight.
For this reason, I’ve seen lottery commissions address their sports betting business in less than half an hour with minimal, if any, discussion or debate. On the other hand, I’ve buckled down for hours-long gaming commission meetings in states like Massachusetts. Commissioners engage in heated debates over how sportsbooks ought to market to or limit players or where betting kiosks should be placed. Sometimes, after hour two or three, they break for dinner before finishing their business.
The Ohio Casino Control Commission, regulator of both Ohio casinos and sports betting, has punished numerous operators for regulatory infractions. They set this standard before the state launched online sports betting, and it shows the rigor needed to protect customers.
With the exception of some online and television marketing regulations, there is little overlap in how lottery tickets and sports betting are handled by regulators.
The need for regulatory rigor in Texas
By all accounts, Texas could become the largest sports betting market in the country when it legalizes.
Most US operators would certainly vie for a Texas sports betting license and work their hardest to get Texans to sign up with their online sportsbooks.
That puts a lot of pressure on regulators to act quickly, efficiently, and with fidelity in enforcing regulations and protecting the public.
Texas looks like it’s still at least two legislative cycles away from legalizing any form of sports betting. Despite that delay, it doesn’t preclude 2025 from being the year to propose the Texas Gaming Commission, or at least create an exploratory committee to consider the merits of such a commission.
When Texas eventually enters the legal sports betting market, it could raise all ships and set new standards for the industry. A gaming commission dedicated to the sports betting industry would be the best way to ensure that these things happen.
