Once-doomed Texas Lottery gets second chance with new agency

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On Sept. 1, the 32-year-old Texas Lottery Commission will be abolished, ending the agency designed to run one of the few legal forms of gambling in Texas: the state-run lottery operation.

Most of the commission’s employees, however, will still show up for work at the same office and in the same jobs to support the same games — only now, it will be the Texas Department of Licensing and Regulation they will be reporting to. Under a new state law, TDLR will take over running the $8 billion operation originally proposed by then-Gov. Ann Richards as a way to generate revenue for Texas’ public schools.

“One thing that plays into this that makes the transition a little easier from a sort of scaling standpoint is that no one’s really moving right now,” lottery transition director Glenn Neal said. “Right now, it’s onboarding people to a new agency, but physically, they’ll remain more or less where they’re at right now.”

The change in leadership was a compromise after the Texas Lottery, recently mired in controversy, nearly came to a complete end during the state’s regular legislative session. Several lawmakers expressed concern about two multimillion dollar jackpots won in 2023 and 2025, prompting investigations and resignations. Led by Lt. Gov. Dan Patrick, legislators accused the lottery commission of turning a blind eye to a money laundering scheme and illegal online ticket sales.

Those concerns eventually coalesced into Senate Bill 3070, a sweeping bill that heralded the end of the lottery commission and the games’ transfer to TDLR and established new guardrails aimed at preventing illegal play.

The will of the Legislature

The TDLR is no stranger to the Legislature handing off new agencies or responsibilities, Courtney Arbour, its executive director, said. TDLR has had 25 different programs placed under its watch since 2015, ranging from midwives licensing to motor fuel metering that span 919,000 different licenses it oversees.

Yet the lottery is an undertaking of its own, and the largest transition TDLR has been tasked with handling. With almost 300 employees, the acquisition is a 50% increase to the department’s roughly 545 current staff. The addition of the lottery will also multiply the department’s budget by six times as it handles oversight of more than 20,000 lottery retailers. TDLR will also oversee the state’s charitable bingo games.

For those looking to purchase lottery tickets, TDLR’s stewardship on its own will not bring any noticeable changes — but SB 3070 brings a series of new regulations on the state games. Those include more stringent restrictions on how many tickets can be bought by one person and the criminalization of lottery couriers that sell printed lottery tickets online, both things the lottery commission had been scrutinized for not reining in years before.

The restrictions come after a single group in 2023 purchased 99% of the Lotto Texas draw game’s 26 million possible ticket combinations to win a $95 million jackpot with the assistance of stores that were owned or affiliated with courier companies. Legislators accused the lottery commission of aiding potential money laundering through the “bulk purchase.”

Lawmakers also claimed that couriers’ online ticket sales were illegal under current law before launching a successful campaign during the session to ban the services. In the five years they were allowed to operate in the state, courier-owned stores quickly became the top-selling ticket retailers, as opponents said their statewide digital market provided an unfair advantage to reach customers.

Tackling a two-year decline

Arbour said she’s met with SB 3070’s author, Sen. Bob Hall, R-Edgewood, as well as Patrick and Gov. Greg Abbott’s office, who have been “very interested” in how the new law will be implemented. TDLR’s transition team has also been meeting with stakeholders, from retailers across the state to dedicated players. One such meeting was with Dawn Nettles, longtime Texas lottery watchdog and publisher of lottoreport.com.

Nettles, who has been a fierce critic of the lottery commission for decades, said she is cautiously optimistic about the department’s handling, but that staff aren’t quite savvy yet about the “ins and outs” of the state games. Beyond public scrutiny and the new regulations, Nettles fears that TDLR’s first challenge will be navigating the games’ recent underperformance.

“They have to make rule changes, but they can’t go in on day one and tackle everything that’s wrong with the lottery,” Nettles said. “Their first and foremost goal better be to evaluate how many draws are offered and how it’s really hurting sales.”

With the fiscal year set to end at the end of August, the Texas Lottery is currently on track to end with roughly $500 million less revenue than fiscal year 2024, the second consecutive year of decline for the game. Significant declines in Powerball and scratch ticket sales have largely contributed to the decline, according to a weekly lottery commission report released Wednesday.

The slump in sales also has diminished the amount of revenue provided to the state’s public education fund, the primary reason lawmakers indicated they chose not to end the lottery completely. The lottery had provided about $1.4 billion to the Foundation School Fund through July, according to data from the Comptroller’s Office, an 11% decline compared to the same period last year and further from the touted 2023 record of $2 billion transferred to schools.

Nettles attributed the decline in sales to the decrease in how often games will pay out major prizes. Arbour recently attended her first meeting with lottery directors from other states that are also experiencing declines in sales, and discussed offering new games or ways to play in order to reengage customers. The Texas Lottery’s change of hands is also a new opportunity to look for what players want, she said.

“What I’ve come to learn about lottery players is they like change,” Arbour said. “They like new ticket options. They like new draw options. And so the staff here meet regularly to talk about the strategies and how to keep providing options for players that will incentivize play for those that want to play.”

The Sunset review ahead

TDLR’s incoming takeover may already be starting on the right foot. Only two weeks in 2025 have passed equivalent weekly sales in 2024: once in January, before the legislative session, and again in late August, two weeks before the lottery’s transfer.

Most of the games’ controversies also have ended or receded from public view. While the Department of Public Safety and Attorney General Ken Paxton’s office both announced investigations into the lottery commission and couriers in February, neither have provided an update since those announcements. The attorney general’s office did not respond to multiple requests for comment on whether their investigations were still ongoing, and a statement from DPS said they were unable to disclose details of an ongoing investigation.

Much of the staff currently with the lottery commission will stay on, but several of the top officials, including former executive director Ryan Mindell, resigned before SB 3070’s passage. Sergio Rey, the lottery commission’s acting executive director and former chief financial officer, will continue to serve as the interim deputy executive director over lottery and charitable bingo for TDLR.

The lottery commission also recently settled a lawsuit from a woman who was not paid out her $83.5 million jackpot because she bought the winning ticket through a lottery courier. The commission agreed to pay the woman after months of maintaining they had to await the completion of the investigations before doing so.

To set up long-term success and inform their decisions, TDLR is tasked with establishing a lottery advisory committee and a bingo advisory committee. Earlier in the month, members of the Texas Commission of Licensing and Regulation voted to adopt emergency rulemaking in order to establish these committees’ terms so that they could start meeting quarterly as soon as the games transfer.

The emergency rules wouldn’t take effect until Sept. 10 and they would remain in place until Jan. 8, Derek Burkhalter, TDLR’s assistant general counsel, said during an August licensing commission meeting. A standard rulemaking process will also take place to establish the permanent rules. Appointments will start taking place at the licensing commission’s next meeting on Sept. 4.

Legislators will have to weigh in on TDLR’s performance in 2029, as SB 3070 requires the state’s Sunset Advisory Commission, which performs audits of state agencies, to review the department’s lottery operation then. Without legislation passed, the lottery would fully be abolished on Sept. 1, 2029.

Nettles said the lottery’s long-term success isn’t just important for TDLR’s reputation or the state revenue to schools that legislators seek. The local economic impact of winners who spend their millions — and the games’ importance to Texans — is a benefit much harder to measure.

“I did tell TDLR this: whatever a player wins, whatever it is, he turns around and gives it right back,” Nettles said.

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