While Texas law enforcement has cracked down on eight-liner game rooms, the small South Texas town of Elsa (pop. 7,200) just passed a series of ordinances to allow them.
Attempts over the last decade to legalize Texas casinos have all failed. That has contributed to eight-liner game rooms popping up all over The Lone Star State. Consequently, Texas authorities have stepped up raids on businesses that house these slot machines.
Small towns are looking for new revenue streams
Elsa City Manager Juan Ybarra said his town needs the industry.
“Elsa is not a wealthy city, so any opportunity for an additional revenue stream – whether through permits, taxes or whatever – we’re gonna explore and that’s kinda where we’re at right now.”
Elsa is one of a handful of towns, mostly in South Texas, attempting to walk the line between legal game rooms and illegal gambling halls to revitalize their communities.
Elsa’s path to staying on the right side of the law could be a model for other towns and cities in Texas. It could also provide a spark to legalize gambling across the state.
South Texas a hot spot for game room raids
South Texas game rooms have been under fire by local authorities for the proliferation of eight-liner slot machines.
In the last 3-4 years, raids on game rooms have spread across South Texas. This map indicates areas where major raids (multiple machines, often multiple locations) occurred:
Zooming in on the greater Rio Grande Valley, the lone blue pin (Elsa, Texas) is surrounded by the red “raid” pins. It paints a dicey picture for investors interested in opening a game room under the town’s new ordinances.
Perhaps due to the threat of law enforcement crackdowns, Elsa will authorize only five game room permits. The city seeks large-scale operators, Elsa City Attorney Gus Acevedo told PlayTexas.
“We’re not interested in small-scale operations with five or 10 machines. These licenses will be for big 50- to 100-machine rooms.”
Permitting process will weed out seedy operators
All applicants for a game room license must pay a one-time, non-transferable fee of $50,000. It will not be refunded if the applicant is denied a permit.
Acevedo cited the steep permitting price as an indication of the type of investor they’re looking for.
“We don’t want anything to do with these illegal operations. We’re asking such a steep price because we want operators to know that we intend to do this right.”
Elsa has a partner on its side
The Texas Game Room Owner’s Association (TGROA), which drafted the game room ordinances, will also levy fees ($50 per machine) to each permit-holder. In return, TGROA will provide legal defense to prosecution arising out of the ordinance.
The organization offers the same quid pro quo deal to each of the seven cities with which it partners. All seven are like Elsa: small, mostly in South Texas.
TGROA is a 501(c)(3) based in Austin. It provides legal counsel for not just cities but game room operators and investors on the pathway to launching viable game rooms under lawful ordinances.
Their website states:
“We are the premier regulatory, compliance, due diligence, and community impact development organization in the game room industry in the state of Texas. Our mission is to facilitate the lawful operation of game rooms throughout the state of Texas, by working with game room operators, government entities, and business investors to ensure fair play and profitability for all stakeholders and the local community.”
With that said, the “Game Room Law in Texas” page on TGROA’s website was last updated in January. That’s three months before a Texas Appellate Court upended a major component of the game room industry: eight-liner slot machines.
Court rules against ‘fuzzy animal’ defense
The court in Fort Worth ruled that eight-liner slot machines – the main sources of income in most game rooms – were unconstitutional. This ruling wiped away a prior statutory amendment informally titled the “fuzzy animal exception” that created a gray area in which eight-liners could operate. This exception permitted eight-liners as long as they produced a prize of less than $5 (or the price of a fuzzy animal).
The April court ruling did away with the fuzzy animal exception. Instead, it prohibited eight-liners on the grounds that they represent illegal lotteries. The court said they met three conditions:
- They required payment
- They offered a game of chance
- The player could win a prize
TGROA still sees lawful path for eight-liners
Robert Flores, attorney and founder of TGROA, told PlayTexas how Elsa could get around the court’s decision
“It comes down to the rules and regulations. I’ve looked at the game rooms and ordinances taken to court in Texas. I’ve also looked at ordinances challenged in other states, and I’ve amalgamated the best ones to create a state-of-the-art ordinance that works in Texas and can be tailored for a specific city.”
Flores believes legality rests on one aspect.
“Our rules state that you have to leave with your prize. You can’t trade it in for cash, for more plays. You can’t trade it to another player. When you collect it, it has to leave the premises with you. What you do with it after that is your business.”
In Flores’ interpretation, offering a non-cash prize that cannot be redeemed for cash avoids the “lottery” distinction. It’s not totally clear how this isn’t just another form of the fuzzy animal exception rejected by the court. Flores, however, is leaning on ordinances drawn up for other towns.
One of them, in Lyford, Texas, sits just 20 miles southeast of Elsa. It instituted a new game room ordinance under Flores’ guidance in 2021. Before that, raids in the city and in greater Willacy County had become so prevalent that the Department of Homeland Security had stepped in.
Since the new ordinance, no new raids have made the news.
Looking ahead in Elsa
Flores and his group will do all the vetting and quality assurance. “The city,” he said, “has really stepped back. They want the job done right, and they want it done clean.”
Based on TGROA’s ordinance, all Elsa game room applicants must be Texas residents or have a lawful organization in Texas. In short, they need to be Texas taxpayers.
Next, they must pass an inspection by the fire department. Once that’s done, Flores and his team will check each machine on site.
“We’re looking for knock-off machines and people trying to take short cuts. We don’t want low-quality machines with wooden drop boxes. We want all our operators to have clean businesses when they launch.”
Currently, all potential operators are in the application process.
“We’re at least a month away from a compliant site, a completed application, and our first operator in Elsa turning the lights on.”
At the moment, no applicants have been approved yet.
TGROA not reinventing the wheel with their ordinances
Elsa is the seventh city working with TGROA to establish viable game rooms. And Flores is not reinventing the wheel here. He uses a template ordinance that he tailors to each city through specific rules and regulations. It’s the product of trial and error and a compilation of the best legal arguments available.
In that sense, what he’s doing at the local level is similar to what regulators have been doing at the state level. The fact that his services have resonated with rural South Texas speaks to the fact that regulated gaming, in whatever form, is a way to end corruption and provide a sustainable revenue stream for the community.