HOUSTON (CN) – There are few casinos in Texas but games of chance abound, because a loophole in state law — cut out for huggable stuffed animals — blurs the lines between illegal gambling and innocent amusement.
Step out into Houston’s sauna-like heat and humidity to walk to the corner store, T-shirt clinging to your already sweating torso. Then step inside and exhale, grateful for the store’s air-conditioning. Strange electronic noises catch your ear above the hum of refrigeration.
In a far corner, five people sit on stools, entranced, their fingers pressing down over and over on what look like slot machines, triggering a harmony of whirling dings and jingles.
You’ve stumbled onto the Fuzzy Animal Exception, a loophole in Texas gaming law, where the difference between legal and illegal is a few cents.
The loophole was carved out in 1995, for arcades that reward game players with carnival-style prizes, such as stuffed animals and little toys.
Given that Texas is the namesake for the most popular poker game in the United States, Texas Hold ’em, you might think the state would embrace gambling, and throw in some tax breaks for Las Vegas-style casinos.
But blackjack, poker tables and slot machines are confined to a few Indian reservations and boats that must sail 9.1 miles away from Galveston or any other coastal cities into federal waters before bets can be laid.
The Fuzzy Animal Exception, approved by the Legislature in 1995, has spawned an industry of poor man’s casinos called game rooms, typically tucked away in strip malls, and stuffed with machines called eight-liners, because a player has eight chances to win, by matching up three icons — such as cherries, oranges, 7s, or gold bars — three down, three across or two diagonally.
In Texas’ most populous county, Harris, game rooms by definition have six or more of these machines and must obtain permits administered by Houston, the county seat and its biggest city.
The profits can be immense — police say it’s not unusual for game rooms to gross $20,000 a night — so these businesses are heavily regulated in Harris County.
Consequences for a violation can be threefold: Owners and employees can be charged with misdemeanors; sued by the county for up to $10,000 a day for each day of violation; and will probably lose their operating permits in administrative hearings.
So corner store owners put no more than five machines in their stores to duck the game room regulations.
Playing Games in a Gray Area
The Texas law that spells out the difference between an illegal gambling device and an amusement redemption machine is rather vague, and certainly prolix. It states: “‘Amusement Redemption Machine’ means any electronic, electromechanical, or mechanical contrivance designed, made and adopted for bona fide amusement purposes that rewards the player exclusively with non-cash merchandise, prizes, toys, or novelties, or a representation of value redeemable for those items, that have a wholesale value available from a single play of the game or device of not more than 10 times the amount charged to play the game or device once, or $5, whichever amount is less.”
Houston police and city and Harris County attorneys say that game rooms are not supposed to pay winners in cash — period.
But in practice, Harris County allows small cash payouts, focusing on this part of the “amusement redemption machine” definition: “that rewards the player … from a single play of the game or device of not more than 10 times the amount charged to play the game or device once, or $5, whichever amount is less.”
Undercover Harris County sheriff’s officers and deputy constables enter game rooms every day to try to make illegal gambling cases. Their methods are straightforward. They sit down at a machine and put in $20.
They make a 40-cent bet, for example. If they win more than $4 on the bet, it’s a crime.
They call over the attendant to collect the winnings. When the employee hands over the money, he’s committed a Class A misdemeanor: possession of a gambling device, punishable by up to a year in jail and a $4,000 fine.
Former Houston police Sgt. Mike Hill scoffed at the idea that game rooms are mom-and-pop outfits, generating modest income for their owners. He said regulations that Harris County implemented in 2013 and Houston adopted in 2014, merging county and city rules, reduced crime associated with game rooms.
Hill, who retired in June after more than 20 years with Houston police, is a talkative guy with a mischievous laugh. Before he retired, he offered a history of Houston game rooms in an interview at the police department’s downtown headquarters.
“From 2005 to 2010 we had numerous homicides in game rooms. There were several security guards that were killed. I personally investigated several locations where there had been robberies, armed robberies. There was a lot of crime and a lot of it anecdotally didn’t get reported,” said Hill, who began investigating game rooms in 2003.
“One particular report that always stuck in my mind was, there was a security guard who came to one of our storefronts to report a robbery. Well, he said his pistol was missing. When the officer started asking questions to do the offense report he goes, ‘Well, I was working at a game room, and it got robbed.’
“‘Why didn’t you call the police, then?’
“‘Well, the ownership of the game room wouldn’t let me.’
“So this security guard got his pistol stolen during a robbery and wasn’t allowed to make a report at that time.
“Since I’ve been associated with it for so long, I have a lot of stories like that in my head.”
Hill has a bachelor’s degree in finance and a master’s in sociology, with an emphasis in criminology. He built computers when he was in his 20s, so he understands how contractors hired by game room owners set the odds in eight-liners, by programming the machines’ motherboards.
Hill said the odds for eight-liners in Texas are not transparent, as they are in states that have gambling commissions, such as Louisiana and Oklahoma.
“In their laws, it states that if you have those machines, you must have the probability within a certain range, and they put a seal on it, so you can’t go back and tamper with it,” Hill said.
“We don’t have that in Texas. That person can hire that tech to set the probability. They could even have 100 machines set at a different probability. So you’re sitting on a machine and you’re winning, and the guy sitting next to you is chunking money in and he’s not getting anything.”
Houston police investigate game rooms when a citizen files a complaint about them.
“I had one that a lieutenant gave me a month and a half ago, where the woman complained that the husband had lost their entire savings in an illegal game room,” Hill said in an interview when Courthouse News began this investigation, in the summer of 2016.
Game rooms that play by the rules don’t stay in business, Hill said, because gamblers will take their money to a room that makes illegal payouts.
… or Just a Neighborhood Social Club?
Harris County game room owner Cliff Tanner disagrees. He said his business is a wholesome place, where neighborhood residents get together to chat and catch up while dropping a few bucks on his machines.
Attorneys Jayson Booth and Sara Richey make their living defending game room employees and owners charged with violating state gambling laws. They have clients as far away as Victoria County, 127 miles southwest of Houston.
Booth, a 58-year-old former Marine, prides himself on his willingness to take a case to trial, fueled by his belief that the county and city regulations are unconstitutional.
Richey, 39, is a mother of two with a knack for getting potential jurors to warm up to her during jury selection.
In an interview at their law office overlooking bustling U.S. Highway 59, Booth and Richey said it can be hard for Harris County prosecutors to impanel a jury for gambling cases because the law is so convoluted, and many people don’t see gambling as a big deal.
“It’s a very confusing thing to the jury. The state, when they get up there trying to tell the jury what the law is, people’s eyes just glaze over,” Booth said as Courthouse News began looking into Houston game rooms.
Booth’s firm has handled nearly 100 criminal cases for people charged with game room violations, plus 30 civil cases and 40 or more administrative hearings, held in the Harris County Sheriff’s Office administration building, next to the downtown jail.
Harris County Commissioners Court, the county’s executive board, appointed bankruptcy attorney Riecke Baumann as game room hearing examiner in September 2015.
Baumann appears to be in his 70s but insists he is 19. He seems to enjoy the prestige of being the hearing officer — and prestige is the only remuneration he gets.
“I don’t get paid. I get free parking and all the water I can drink and free use of the restrooms and free toilet paper,” he said.
Police and sheriff’s officers and city attorneys sit at a table across from game room owners and their attorneys, with Baumann in the seat of honor. Undercover officers who say they found game room violations sit in an adjoining room, so their faces are not revealed.
The list of regulations is long. Game rooms cannot have blinds drawn or their doors locked. They cannot require membership or deny access to law enforcement. They must post a sign outside each door that says “Game Room,” in 4-inch letters or larger. They may be open only from 8 a.m. to 10 p.m., and must have a record for each employee, including photo, name, address, birth date, state identification number or Social Security number and a W-2 or W-4 form available for inspection by police.
That’s in addition to the operating licenses they get from the city, and permits they must affix to each machine.
At an administrative hearing, two undercover officers, identified only as Deputy Ochoa and Sgt. Gaston, described to Baumann their investigation of the Lucky Pot Game Room in far southeast Houston.
Both officers said a security guard at the game room forced them to leave before they could put money in a machine.
“I inquired why I was not being afforded the opportunity to enter to play, at which time he told me he didn’t recognize me and the manager wasn’t there to OK me to go in and play the games,” Gaston said.
A deputy constable at the hearing, also protecting her identity by speaking from another room, said that during a May 9, 2016 inspection of the game room she saw other violations.
“As we went in to make the inspection, the windows were blocked with blinds all over them. You couldn’t see the machines at all. … There was also a door to the left that was locked,” said the officer, who estimated the place had 60 to 80 machines.
After some back and forth between a city attorney, Baumann and Sara Richie, who was representing the game room owner, Baumann issued his ruling.
“Well, she’s saying she saw the locked doors and she’s saying she saw the obscured windows and two of them say they wouldn’t let them in, so with that in mind I’m going to do 90 days [suspension of Gonzalez’s game room permit],” Baumann said.
Baumann has a well-worn line he uses for defense attorneys frustrated with his rulings, which almost always are in favor of law enforcement.
“I have a standing deal. If you get me reversed, I buy you lunch,” he says.
Defense attorneys can appeal his rulings by filing a lawsuit in state court.
Going, Going … but not Gone
Only 75 game rooms remain for the 4.4 million people of Harris County, down from a high of more than 200. The attrition is largely due to a rule change that Houston and Harris County implemented in 2014, under which if a game room has its license suspended, its owners cannot renew that license if the game room is within 1,500 feet of a school or house or within 2,000 feet of two other game rooms. In these cases, it must shut down.
Booth said the change has led many game room owners to go off radar and open without a permit, because it’s difficult to find a building that’s not within 1,000 feet of a home.
“I do know of one person who has a game room that doesn’t have a house anywhere around it, so they don’t have a problem on that. But I will tell you that most of the people I know have just reopened without a permit. … That way they don’t have to tell the sheriff’s office where they are, they can put tinting on all their windows so police can’t see in, they don’t have to allow them to inspect, so the sheriff’s department has to have a warrant to get in there,” Booth said.
Hill, the former police sergeant, said Houston patrol officers monitor the sites of shut-down game rooms to ensure they don’t reopen.
“And also we have citizens. We have a very active community in Houston that is very concerned about these,” he said.
Hill’s most memorable bust was in October 2016, when police raided and shut down the Green Grass Game Room in northwest Houston and seized $1.9 million from the home of its owner, Chang Choi, 59, who was arrested on organized crime charges.
Harris County District Attorney’s Office misdemeanor division chief Nathan Beedle said his office focuses on gambling cases with ties to organized crime, and cracks down on owners who hide their affiliation through shell companies.
“The employee of the owner standing there, facilitating the game room, I would say we treat differently than the owners,” Beedle said in a recent interview at the Harris County Criminal Courthouse in downtown Houston.
“I’ll give you an example. I had some woman in her 70s who was working [at a game room]. I think this is the only place she could get employment. I’m not going to be particularly high on the punishment scale for her.”
The District Attorney’s Office offers pretrial diversion to many game room employees and owners, under which they sign a contract with prosecutors, and if they abide by the terms, which may involve community service or classes, the charges are dropped and may be expunged.
Beedle was hired by District Attorney Kim Ogg, who took office in January. He said he assigns his division chiefs, one for each of Harris County’s 16 misdemeanor courts, to illegal gambling cases to overcome potentially skeptical jurors, and they’ve had no trouble impaneling juries. The division chiefs are assigned illegal gambling cases because they have more experience “dealing with crimes a segment of the population believes should be legal.”
Beedle said the district attorney’s office has tried four or five such cases this year and won them all.
Meanwhile, Booth is hoping to get the record-keeping aspect of the game room regulations declared unconstitutional. He believes it violates Texas privacy laws.
“Name me a company where the receptionist at the front desk has access to everybody’s W-4 and everybody’s employment application, with all their work history and salary history and their Social Security number,” he said.
If the line between fuzzy animal toys and hard-core gambling may be blurry at times, so can be the line between prosecution and politics.
Booth said Harris County and Houston may give free passes to big-time operations that can afford to hire high-powered legal help, and go after easy pickings, such as true Mom & Pop stores.
He mentioned arcade-restaurateur operator Dave & Buster’s, a publicly traded, Dallas-based company with more than 83 outlets in the United States. Its arcades include bars and sit-down dining. Customers can play video games and games of chance that spit out tickets, some of which can be redeemed on site for stuffed animals. Serious players who amass enough tickets can redeem them for expensive prizes, such as X-boxes .
Citing corporate records that Dave & Buster’s disclosed to federal regulators, Booth said the company should have to get game room permits for its outlets because it gets more than 51 percent of its revenue from amusement redemption machines, the benchmark by which companies fall under the regulations.
“The reason they don’t enforce it against these companies is because they could pay for a huge amount of lawyers to go in and get this law thrown out,” Booth said.
Dave & Buster’s did not respond to a request for comment.
Attorney Booth calls police seizures of money at game rooms “legalized theft.” He said he’s seen cases in which police broke open an ATM on the premises and took all the money from it.
Less Money … Less Crime?
Seizure records provided by the Harris County’s District Attorney’s Office show there are fewer permitted game rooms operating here than in years past.
Harris County and Houston police seized more than $2 million from game rooms in 2014 and 2015, but only $616,000 in 2016.
Revenue from permitting and machine-license fees is also down.
According to Houston’s Administration & Regulatory Affairs Department, which administers machine and game room permits for Harris County and the city, machine-permit revenue fell from $536,000 in 2014 to $337,400 in 2015 and $269,000 in 2016 — nearly a 50 percent drop in two years.
Game room permit revenue dropped from $314,500 to $149,400 to $99,000 in those same years.
Though he’s retired, Hill said he’s going to stay active in law enforcement, teaching officers for Texas police departments that don’t have academies. He said game room regulations have helped make Houston a safer place.
“When we first started doing the active investigations back in 2013 and 2014, it seemed like on a weekly basis there was a report in the media about some violent event at a game room, and I think through the concerted effort of law enforcement in Harris County that you’ve seen those violent game room robberies and aggravated assaults have gone down.”
But the dings, whirs and bells of the computer games still sound in corner stores, and players still sit in front of them entranced, sliding in their coins, thanks to the Fuzzy Animal Exception.
(Photos courtesy of the Harris County Sheriff’s Department.)