Regulations for a Game Room Business in Texas

Gambling laws in the Lone Star State can be quite complex. Gambling is generally illegal in Texas with a few exceptions. Electronic machines, like those at race tracks and on Native American reservations, are legal; so is horse racing, charitable bingo and the lottery.

The legality of game rooms and eight-liner machines, such as those found in convenience stores or bars around the state, is less clear. Local ordinances in each county regulates these.

The state of Texas is one of the strictest in the U.S. when it comes to gambling. Its laws cover a wide swath of gambling activity. Under Texas law (Penal Code Section 47.02), gambling is a criminal offense if an offender:

• Bets on a game or a contest’s partial or final results, or how a participant performed in a game or a contest.
• Bets on a political appointment, election nomination or the degree of success of an appointee, nominee or candidate.
• Uses cards, dice, balls or other gambling devices to bet money.
• Participates in the earnings or operation of a gambling place.
• Takes part in bookmaking.
• Holds anything of value or offers to bet for profit.
• Sets up or promotes lotteries or offers for profit.

Texas residents can legally bet on horse races, buy lottery tickets, play charitable bingo or take part in office pools.

Eight-liner machines are electronic gaming machines similar to slot machines. Each game has a different design, but players generally win if like objects line up horizontally, vertically or diagonally. Eight-liner machines include video reels, video keno games and video bingo games. The cost and prizes vary from game to game.

Over the past decades, Texas has seen a proliferation of these machines and subsequent game rooms in places like conveniences stores and bars.

The use of eight-liner machines in Texas has been controversial in the last decade. The state of Texas forbids any gambling devices, including eight-liners, from awarding players with cash prizes. But Texas law has something lawmakers refer to as the "fuzzy animal" exception. This loophole allows machines to award players with non-cash prize payouts of less than $5.

Under state law, if an eight-liner machine is used in this way by awarding the player with merchandise or vouchers that can be redeemed for prizes, and the prize value or certificate is less than 10 times the cost of one single play or $5, the eight-liner machine is legal. However, if the value is more than $5 in prizes or certificates, it is illegal.

Since the “fuzzy animal” exemption came into being in the mid-1990s, legislators have attempted to either prohibit or legalize eight-liners and gaming devices like them or place the machines under the Texas Penal Code’s definition of gambling devices. This would make them illegal to play, but lawmakers so far have been unsuccessful.

In 2013, some Texas counties were given authority by the Texas Legislature to regulate game rooms in their area. Lawmakers amended the law six years later to give the right to all Texas counties. Today, game rooms are under local ordinances, which vary from county to county.

Every county in the state now has ordinances for regulating game rooms. For example, in 2022, Llano County’s Commissioners Court adopted an ordinance for game rooms with at least six eight-liner machines. This ordinance requires:

• Permits to operate game rooms. The first or initial fee for a permit is $1,000 with a renewal fee of $1,000.
• Game rooms have a grace period of 30-days to submit a permit application after theirs has expired.
• Arcades for children, small arcades in legitimate movie theaters, businesses where gaming machines are secondary, and businesses with revenues of at least 51 percent generated from food and drink sales do not need permits.
• Game rooms cannot be within 2,500 feet of any schools (public or private), places of worship, residential neighborhoods or where one is planned, or other game rooms. Those already in operation are grandfathered in.
• Game room owners cannot require players to have memberships.
• Game rooms must keep their doors unlocked during business hours.
• Game rooms must close between 10 p.m. and 8 a.m.

Outside of legal game rooms under local ordinances and state exemptions like horse racing, bingo and playing the lottery, gambling for economic benefit in Texas is illegal. The offense is either a Class A or C misdemeanor.

Individuals charged with a Class C misdemeanor for illegal gambling face a $500 fine, probation and community service; those charged with a Class A misdemeanor for illegal gambling face a penalty of up to one year in jail and a $4,000 fine.

Currently, casino gambling is not legal in Texas, but in 2023, the Texas legislature is considering the legalization of a small number of commercial casinos and sports betting establishments. If the legislation passes, it will require approval from voters in the next state election.

However, federal Indian gaming laws supersede state laws regarding casinos. In Texas, three federally recognized tribes operate casinos. Each casino operates Class II gaming on reservation land, including bingo-type slot machines and non-banked card games.