TITLE 16. ECONOMIC REGULATION

PART 9. TEXAS LOTTERY COMMISSION

CHAPTER 401. ADMINISTRATION OF STATE LOTTERY ACT

The Texas Lottery Commission (Commission or TLC) adopts amendments to 16 TAC §§401.158 (Suspension or Revocation of License), 401.160 (Standard Penalty Chart), and 401.355 (Restricted Sales) without changes to the proposed text as published in the March 21, 2025 issue of the Texas Register (50 TexReg 2015). The rules will not be republished. The purpose of the amendments is to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the Texas Lottery by prohibiting the use of lottery ticket courier services that, by any remote means, such as telephone, Internet application, or mobile application, accept and fulfill, for a fee or compensation, orders to purchase lottery tickets on behalf of another person not present to effect an in-person sale (couriers). The TLC intends to exercise this authority through administrative enforcement proceedings to revoke the lottery ticket sales agent license of a retailer that works in concert with a courier, whether under a common ownership arrangement or otherwise.

Two entities provided written comments to the proposal and those same commenters and one other provided oral comments at a public comment hearing held on April 3, 2025. Comments in support of the proposal were provided by the Texas Food and Fuel Association, which represents the wholesale and retail levels of the food and petroleum industries in Texas, and whose members own, operate, or supply more than 16,500 retail convenience stores in Texas.

Comments opposed to the proposal were provided by the Coalition of Texas Lottery Couriers (comprised of couriers Jackpocket, Jackpot.com, and Lotto.com) (CTLC). At the hearing, Lotto.com was separately identified as joining in the oral comments of the CTLC.

COMMENT: The CTLC's written comments assert that couriers do not violate prohibitions on the following:

-- A person playing a lottery game by telephone (State Lottery Act (Texas Government Code ch. 466) (SLA) Section 466.015(b)(4));

-- Advertisements that unduly influence a person to purchase a lottery ticket (SLA Section 466.110);

-- The purchase of a ticket by officers and employees of TLC vendors, TLC employees, and the immediate family members of those individuals (SLA Section 466.254);

-- Selling a ticket at a price greater than that fixed by the TLC (SLA Section 466.302);

-- The sale of a ticket by an unauthorized person (SLA Section 466.303);

-- Selling a ticket at an unauthorized location (SLA Section 466.304);

-- The sale of lottery tickets on credit or using other unauthorized methods of payment (SLA Sections 466.305, 466.3052);

-- The sale of lottery tickets to persons younger than 18 years of age (SLA Section 466.3051);

-- Establishing a group purchase or pooling arrangement for financial gain (SLA Section 466.3054);

-- Influencing the selection of a winner of a lottery game (SLA Section 466.307);

-- Claiming a lottery prize by fraud (SLA Section 466.308);

-- Inducing another person to assign or transfer a right to claim a prize (SLA Section 466.310); or

-- Using an unauthorized quick response (QR) code to enter draw game plays (TLC Rule 401.304(b)(1)(F)).

The CTLC/Lotto.com provided the following additional comments at the public comment hearing:

-- The commenters disagree with the fiscal impact statement in the proposal preamble that there is no anticipated significant financial impact for state or local governments as a result of the proposed amendments. The commenters stated that, collectively, couriers contribute in excess of $100 million of Texas Lottery sales and that if the ban is implemented the state stands to lose hundreds of millions of dollars of funds.

-- The commenters disagree with the Commission's concern that courier operations present opportunities to violate prohibitions on ticket purchase by Commission employees or vendors, stating that this prohibition is not a restriction on retailers.

-- The commenters disagree with the Commission's concern that courier operations present opportunities to violate prohibitions on influencing the selection of a winner of a lottery game, stating that neither retailers nor couriers can do that.

-- The commenters state that no responsible courier has ever been cited for credit card orders, that there have been no documented instances of access by minors to courier systems, and that there have been no concerns expressed by the Texas Lottery about responsible courier advertising.

-- The commenters support state regulation of couriers and asks the Commission to allow the Legislature to determine whether couriers should be regulated or banned before taking action.

RESPONSE: The Commission recognizes there are differing views on whether the prohibitions noted by the CTLC are not violated by responsible couriers. However, even if some couriers have implemented internal processes to demonstrate a commitment to responsible operations, such actions are unregulated and voluntary, have not been reviewed by a regulatory authority, and are not enforceable.

Regardless of the voluntary efforts of some couriers, courier activity in Texas has operated without the oversight of a regulatory authority to ensure that the public is protected from potential crime and other harms identified in the Commission's February 2024 Policy Statement on the Prohibition of Lottery Ticket Courier Services through a common set of enforceable statutes and rules. The impetus for these amendments is the need to protect against the potential for violations and circumvention of state law attributable to the operation of unregulated couriers. Recent retailer investigations by the Commission have raised concerns that many couriers may have allowed unauthorized methods of entering a draw game play, including quick response (QR) codes not approved by the Commission, and potentially other electronic methods of entering a draw ticket play. In addition, unregulated courier operations provide opportunities for other illegal and fraudulent activities to flourish, including money laundering, the sale of fictitious tickets, and false representations of a courier's association with the TLC. The Commission's base of knowledge continues to grow with time and experience, and has informed the Commission's decision to exercise discretionary authority under the SLA to determine that the operation of unregulated couriers poses a threat to the integrity, security, honesty, and fairness in the operation and administration of the Texas Lottery.

Accordingly, after the amendments take effect, the Commission will revoke the license of any retailer that works with or assists a courier service, to ensure that all aspects of ticket purchases and sales comply with state law and agency regulation and remain within a clearly defined, secure and enforceable legal framework.

Regarding items specifically noted in the oral comments of CTLC/Lotto.com, the commenters assert certain of the Commission's concerns are misplaced, either because responsible couriers do not commit particular violations or because the commenters are not aware of any instances where the Commission has identified violations or expressed concerns.

First, with respect to the fiscal impact statement in the proposal preamble, the Commission does not anticipate a significant financial impact solely from the implementation of this rule. There are various economic factors which may negatively impact consumer purchase behavior. In this situation, if couriers are prohibited, consumers continue to have alternative options to purchase lottery tickets.

With respect to SLA Section 466.254 (Purchase of Ticket by or Payment of Prize to Certain Persons), the Commission's concern is that the insertion of a courier in the ticket purchase transaction, where the end-use customer does not interface directly with a retailer, provides a buffer from regulatory oversight, creating additional opportunities for a person subject to the prohibition on purchasing tickets and claiming prizes to more easily circumvent the prohibition and remain undetected.

With respect to SLA Section 466.307 (Influencing Selection of Winner), the Commission encounters instances where a retailer or a retailer employee has "pin-pricked" or micro-scratched the play area of a scratch ticket to determine if a ticket is a winner, kept the winning tickets to claim, and placed non-winning tickets in the store dispenser for sale to unsuspecting customers. Thus, influencing the selection of a winner is a violation that retailers can and do commit from time to time, and couriers, as bearers of the tickets purchased by their customers, can likewise commit; but, in the instance of couriers, there is no regulatory oversight or enforcement mechanism to protect customers. A lottery ticket is a bearer instrument, and in the hands of an unregulated courier, with no regulatory oversight, there is arguably greater potential to influence the selection of a winner and remain undetected than with a licensed retailer.

In summary, the lack of regulatory oversight and enforcement mechanisms for courier operations threatens the integrity, security, honesty, and fairness of the Texas Lottery. The opposing commenters urge the Commission to allow the legislative process in Texas to proceed rather than act to prohibit courier operations. Given the current unregulated state of courier activity, the Commission believes prohibition is appropriate at this time. If the Texas Legislature enacts laws addressing lawful courier operations, the Commission stands ready to implement them.

SUBCHAPTER B. LICENSING OF SALES AGENTS

16 TAC §401.158, §401.160

These amendments are adopted under Texas Government Code §466.015(c)(15)(A), which authorizes the Commission to adopt rules to promote and ensure the integrity, security, honesty, and fairness of the operation and administration of the lottery; and §467.102, which authorizes the Commission to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 29, 2025.

TRD-202501419

Bob Biard

General Counsel

Texas Lottery Commission

Effective date: May 19, 2025

Proposal publication date: March 21, 2025

For further information, please call: (512) 344-5392

SUBCHAPTER E. RETAILER RULES

16 TAC §401.355