In the heart of Downtown Pflugerville, The Whisky Room looks like many haunts in the area, complete with live music, pool tables and several beers on tap. But adjacent to the bar counter is a lounge room lined with brightly colored LED screens displaying casino-style games.

Despite bearing a visual resemblance to gambling devices—which are illegal in Texas—these are sweepstakes machines, and, according to Community Relations Director Greg Smith of Big Easy Entertainment, the company that manages The Whisky Room, they are legal if operated properly.

By using exceptions in state law, bars, restaurants and game rooms throughout the Austin metro are operating sweepstakes machines as an entertainment option for customers.

However, in December, state courts reached a stalemate on determining the legality of certain machine varieties, leading cities such as Lakeway and Hutto to take preemptive action to regulate them.

The context

While details vary across operators and devices, the basic principles of sweepstakes machines tend to be the same, according to experts with the Texas Municipal League, a legal research organization for municipal governments.

• The games are free to play: Entry to the sweepstakes may require a donation, the purchase of a product or a form of in-person request. Each sweepstakes entry comes with “points.”
• Customers can use points to play casino-style games that reveal winning sweepstakes entries in an entertaining way. The game outcomes are predetermined, and there is no skill or chance involved in the gameplay itself.
• Patrons with a winning entry have the opportunity to either claim a noncash prize or redeem their “points” for cash.

According to the TML, the law regarding sweepstakes machines has been carved out by various state court rulings over the years, leaving room for the possibility of their legality, granted the primary purpose of the transaction is to receive a product or give a donation—not to play a game.

With this in mind, Smith said he believes true sweepstakes machines do not count as gambling.

“You never pay to play,” Smith said. “You might win [a game], but you never lose, because you've already bought a product. It's yours ... The games are nothing but entertainment.”

What officials are saying

State law allows for cities and counties to regulate game room establishments through zoning. Additionally, cities may permit either individual machines or the establishments themselves.

According to a statement from the city of Austin, the city does not issue a permit specifically for game rooms, and therefore, no official count of the businesses is available, even through the Austin Police Department.

Additionally, neither Travis or Williamson counties have an ordinance that specifically addresses game room establishments or the legality of sweepstakes machines.

However, in some Austin-area cities, game rooms could face more scrutiny from city officials going forward. This year, both the cities of Lakeway and Hutto approved ordinances that create a form of game room permit and limit their proximity to community centers, such as churches and schools.

“Before, we were requiring them to get a special use permit under the auspices of an arcade. And that's a bit of an antiquated model that we didn't think was necessarily applicable to these types of environments,” Lakeway City Manager Joseph Molis said.

Hutto’s ordinance goes even further by clarifying that true sweepstakes machines are not illegal gambling devices and outlining a procedure for regular inspections.

John Montgomery, owner of Hutto’s Lucky Hippo game room, said he is in support of local efforts to regulate the game rooms, and is hopeful they can change public perception of the businesses as crime-riddled, dark and secretive.

“We don't want to be a stigma on the community,” Montgomery said. “That’s why we go and talk to elected officials and law enforcement—because we don't want to ruffle feathers.”

What the law says

Section 47.01 of the Texas Penal Code defines gambling as any game of chance that, for a payment, affords the player a prize of value, barring games falling under what’s called the “fuzzy animal exception.”

The exception was intended to allow children’s games, such as those at Chuck E. Cheese, to award the player noncash prizes of a limited value. Some game rooms have used this loophole to offer redeemable gift certificates that can be cashed out, TML representative Amber McKeon-Mueller said.

Multiple Austin bar owners and sweepstakes machine operators told Community Impact they offer some form of cash-redeemable certificates for players to claim their winnings. One said they even had a patron walk out with nearly $10,000 in cash.

All of the operators said their sweepstakes software is owned by a third-party company that handles the payouts.

If a local law enforcement agency suspects a business of running illegal gambling operations, the establishment can be shut down, and the machines may be seized. Law enforcement is primarily informed of gambling activity through tips from private citizens and patrol officers, according to statements from the Travis County Sheriff's Office and Austin Police Department.

Kimberly Kiplin, a former attorney for the Texas Lottery Commission, said in her time studying game room law, she wasn’t aware of a patron arrested for playing on an illegal gambling device.

“It’s usually the operator [that’s punished]. Usually, law enforcement is trying to follow the money,” Kiplin said.

The bigger picture

Officials from Hutto and Lakeway confirmed the reason for the new ordinance has to do with the Texas Supreme Court’s refusal to review a case pertaining to the legality of certain game room machines in December.

According to the TML, which provides legal advice to cities in Texas, the previous ruling of the lower appellate courts has given cities more leverage to define the terms of the fuzzy animal exception for themselves.

Montgomery said while he believes his business model provides a net positive to the community, the lack of clarification within state law leaves the legality of establishments like his up to the whims of local elected officials.

“I think the state's way behind on a lot of the gambling laws. ... People are going to gamble whether it’s legal or not, but regulation can make it safer,” Montgomery said.

In recent years, state lawmakers have introduced several bills to regulate or legalize gambling devices, but many of them have failed.

In 2023, bills involving the legalization of casinos and sports betting found some success in the House but never passed.

In November, a majority stake in the Dallas Mavericks was sold to Miriam Adelson, who has ties to the Las Vegas Sands casino company. Since then, the company formed the Texas Destination Resort Alliance to petition lawmakers to consider allowing resort-style casino concepts throughout the state in future legislative sessions.

If legislation to amend the constitution were to pass in the next legislative session, voters would get the final say in November elections.