What are the chances Texas will legalize sports betting in 2021?

by | Feb 5, 2021 | Regulatory Risk Analysis and Compliance

In the two years since the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, which prohibited state-authorized sports wagering outside Nevada, 23 states have legalized sports betting. Is Texas next?

The pandemic-induced budget shortfall sparked renewed interest in legalized marijuana and gambling, which could bring in significant tax revenue for the state. But hopes for legalized sports betting deflated when Comptroller Hegar announced that the budget shortfall is significantly smaller than expected—a $1 billion deficit compared to an earlier $4.6 billion estimate. As The Texas Tribune’s Ross Ramsey points out, Texas legislators have a history of being reactive when it comes to gaming. The state lottery and pari-mutuel betting were both born out of necessity, not foresight.

A rosier economic forecast, paired with the state’s historical aversion to gambling, suggests the Legislature will not legalize sports betting in 2021. Nonetheless, it seems likely the Legislature will take sports betting legislation under consideration this year, building momentum for future sessions.

State Representative Harold Dutton (D-Houston) has proposed a constitutional amendment (HJR 68) that would legalize online-only wagering on professional and collegiate sporting events. To take effect, HJR 68 must be adopted by at least two-thirds of each chamber and then approved by Texas voters. Under the implementing legislation—HB 1121—the state could issue up to five permits to sports betting operators, for a fee of $250,000 each (and a renewal fee of $200,000). Each bet would be subject to a 6.25% tax, with revenues contributed to a school fund. An identical constitutional amendment (HJR 61) and implementing legislation (HB 1275) were proposed during the 2019 session by State Rep. Eddie Lucio, Jr. (D-Brownsville) but died in committee.

If the rumors are true, there is more sports betting legislation to come, and it’s backed by the state’s pro sports team and heavyweights of the sports betting industry. Chris Krafcik of Eilers & Krejcik Gaming, a gaming research company, is reporting draft legislation that would feature a 10% tax rate. According to Eilers & Krejcik, the legislation is backed by the Cowboys, Mavericks, Rockets, DraftKings and FanDuel and “would allow horse tracks, greyhound tracks, and sports teams to operate online sports betting via a single skin, among other things. We estimate that there would be 16 available skins.”

Online/mobile sports betting is relatively new and presents unique challenges. New Jersey, which legalized sports betting in 2018, has raked in more than $100 million in tax revenue since then—primarily from bets made on a mobile device, which account for 80% of all bets. While the revenue opportunity is attractive, the potential for negative externalities such as underage access and unrecognized addiction is likely higher with online wagering. Some of these concerns can be mitigated by requiring mobile operators to implement multistep age verification protections and monitor for betting patterns that may indicate signs of addiction. States must also comply with the 1966 Federal Wire Act, which prohibits interstate sports betting. Other states use geofencing and geolocation technology to ensure that people are physically in the state before placing their bets.

Ultimately, efforts to legalize gambling at brick-and-mortar casinos could suck all the oxygen out of the room for online sports betting. Gambling empire Las Vegas Sands is lobbying hard to bring casinos to Texas, and State Rep. Joe Deshotel (D-Beaumont) has proposed a constitutional amendment asking voters to approve casino gambling in certain parts of the Texas coast.

June 3, 3021 update:
HJR 68, which proposed a constitutional amendment to legalize online-only wagering on professional and collegiate sporting events, died in committee.

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