The Texas Lottery Commission (TLC) has finalized its ban on courier services, but the legal picture for the state’s future remains complicated.
An online lottery isn’t legal in the state, but for years, third-party businesses known as lottery couriers made retail tickets available online, acting as proxies for players to purchase tickets. However, an about-face from the TLC two months ago changed all that. A ban on lottery couriers was proposed by the commission on Feb. 25, and approved by the board in a meeting today, April 29.
Now, state lawmakers are joining the commission in pursuing an all-out ban of the industry.
It’s a complicated situation that boiled over due to a lawsuit and investigations against the TLC over allegations of fraud and conspiring with couriers to allow select players to cheat the system.
Couriers are beginning to fight back on the legal front, leaving the already rocky situation even more turbulent.
Stephen Piepgrass, Partner at Troutman Pepper Locke law firm told PlayTexas that couriers have to be caught off guard by the dramatic shift in the state’s approach to their industry.
“I’m sure the companies are feeling a bit of whiplash, having the Lottery Commission really have an about face on, even their authority to regulate them and take the position for years that they had no such authority, and then immediately you make the switch and say, ‘not only do we have the authority to regulate you, it’s also illegal to operate.’ That puts companies that have invested a lot in in creating these businesses in a really difficult position. So, I would imagine that they are experiencing significant whiplash right now.”
Jackpots won through couriers lead to changes
The history of couriers and the Texas Lottery has been well documented, but the main focus is on a pair of Lotto Texas jackpots won by courier customers.
The first, and most notable, came in April 2023 when a collective known as “Rook TX” utilized couriers to purchase nearly every outcome of the game to win a $95 million jackpot. That particular event is the basis for the current fraud lawsuit against the TLC and its former Executive Director, Gary Grief.
The second win came on Feb. 17 of this year when an individual purchased 10 Lotto Texas tickets through courier Jackpocket and won the $83.5 million top prize. Despite being a very different circumstance, legislators had had enough of the gray area that was present over the legality of couriers.
That winner has yet to be paid as investigations are taking place over the win and the TLC’s practices. Since the recent win, TLC Commissioner Clark Smith stepped down. Executive Director Ryan Mindell followed suit weeks later amid growing pressure from legislators seeking to make the Texas Lottery credible in the eyes of the public.
Pipegrass believes that the declining perception of the TLC is what is driving these current legal pursuits.
“Bad facts make bad law, something like that, right? I think this is a case here where you had a couple of huge wins in the Texas Lottery, where couriers were involved, and when you’ve got headlines like that, you often see rapid policy changes following thereafter. Government officials watch the news and they see what’s happening, and they, more than anyone, have a finger on the pulse of public opinion on an issue. I think that that those wins in which couriers were involved really did create pressure to change an interpretation, and that’s what we saw.”
Lotto.com files lawsuit against TLC
The couriers aren’t taking the news in Texas lying down. While some ceased operation in Texas immediately, others are pushing to find their legal options.
Courier Lotto.com filed a lawsuit last week in Texas, seeking relief against the TLC and its Acting Executive Director Sergio Rey due to the ban on the industry.
In the lawsuit, Lotto.com argues that the TLC violated a 30-day rule change requirement when it first announced it would ban couriers back on Feb. 24. The company claims that same day, lottery terminals were confiscated from multiple couriers.
In a statement to multiple media outlets, the Coalition of Texas Lottery Couriers voiced its support for the lawsuit.
“It is time to reconsider the agency’s politically motivated decisions regarding lottery couriers and restart good faith collaboration between our companies and fresh leadership at the TLC. For years, lottery couriers have asked to be regulated and remain committed to abiding by a regulatory framework that protects the integrity of the Texas Lottery while also allowing our millions of Texas customers to continue to safely and conveniently order lottery tickets.”
An official vote on the courier ban by the TLC board took place on Tuesday. The board unanimously passed new policies that would revoke the license of any retailer known to be working with a courier, on top of heavy fines. Lotto.com is seeking a temporary injunction on this decision that would allow them to continue to operate in Texas for the time being.
Other Texas legislation calls for ban, as well as regulation
On top of the new policies banning couriers by the TLC, legislators filed separate bills in the Texas House and Senate to bring clarity to the courier situation following the Feb. 17 Lotto Texas jackpot.
Senate Bill 28 calls for the banning of lottery couriers by prohibiting the sale or purchase of lottery tickets on the internet. The bill unanimously passed through the Texas Senate on Feb. 27 and is currently with the Texas House. Senate Bill 1346 also would prevent customers from purchasing all outcomes of a lottery drawing. It also passed the Senate and is now with the House.
Meanwhile, House Bill 3201 calls for the licensing and regulation of lottery couriers by the TLC. It would require an occupation license and authorization fees for a courier to operate in the state. The bill was filed on Feb. 21 and has been assigned to the Licensing & Administrative Procedures Committee.
Fellow Partner at Troutman Pepper Locke, Lauren Fincher, tells PlayTexas that the TLC’s hard stance allowed the state to try to create at least a momentary pause while they sort out the best option.
“I think the public perception and the sentiment from the legislature is that the public trust has been eroded in the Texas Lottery. With that said, I think the commission sort of took a smart approach to kind of, set the ban now to at least kind of bring down the fever pitch. So, I think they’ve set this issue in a way that sort of leaves room for whether they’re going to deviate in the future and find a way to regulate.
“I do think that there is potential there, depending on what the opinion says and how they go forward, and whether they’re going to deviate from at least the current status quo, which is now the outright ban.”
On Tuesday, the TLC board clarified that if state legislators pass laws to regulate the courier industry in the state, the commission would be required to adapt these new policies put in place on Tuesday and follow the rules set forth by the government.
Some Texas officials have gone as far as to call for the TLC to be defunded, as the House passed a budget this month that would provide $0 for the Texas Lottery in the 2026-27 spending plan.
Fincher believes that stance is likely a bit of tough talk to force the TLC to find a resolution that leaves the public satisfied.
“My guess is that that statement and language is probably intended at least to signal some guardrails, or at least the direction they want to go. At least, as a Texas practitioner, I haven’t heard of that being a viable solution to just shut down the whole thing.”
Couriers not all on the same page
The idea of regulation is not something a number of couriers are against.
In the US, the most prominent names of Jackpot.com, Jackpocket and Lotto.com all have worked with state regulators to establish a working relationship, many in states that don’t have legal online lotteries.
However, others have been more open to exposing the legal gray areas, offering bulk purchases and allowing for customers outside of a particular state, or even the US entirely, to purchase tickets. It’s those operators that are making it difficult for the industry to earn credibility in the eyes of lawmakers, as Piepgrass notes.
“We see this in a lot of heavily regulated industries, where you have those who are actually interested and want to be regulated, and then others who are happy in the in the gray and see that as a way of making a great deal of money in a very short period of time. I think in the long run, those who are interested in being regulated have an interest in actually finding common ground with the regulators. Putting in guidelines, real clear guard rails, and pushing out those who’d prefer to stay in the gray.”
Ultimately, over $2 billion in funding for Texas has come through the state lottery in each of the last two fiscal years. Finding common ground for legislators and couriers makes sense for both parties.
To do that, age verification measures, geolocation measures, and more likely need to be put into place to assure the public their lottery purchases are credible and on a level playing ground with courier customers.
Fincher believes creating that landscape is an ideal solution, as opposed to just ruling all things out.
“I think the impetus for the regulatory framework is to address those concerns. We’re talking about things like background checks. How do you set up a licensing scheme where you can actually weed out one from the other in terms of the type of companies that might be involved. What do compliance audits look like? You know, various mechanisms that could be in place. But again, if you go with the outright ban, you sort of make that decision without figuring out those issues.”
