SULLIVAN CITY, Tex. — Casino gambling with cash payoffs is illegal in Texas. But on a drizzly Tuesday afternoon in February, you could not tell it by the scene inside a former tire shop near this Rio Grande Valley border town: a few dozen men and women gambling on 75 slot machines in windowless rooms.
Among the cattle ranches and wind-battered palm trees on U.S. Highway 83, the setting was lowbrow — free chips and soft drinks were the only amenities — but the payouts, in one of the poorest sections of Texas, were substantial, up to $4,000 per play.
After sliding their money into the machines, gamblers who scored jackpots raised their hand, yelled “Ticket!” and waited for a worker carrying a thick wad of bills to convert the points they had won to cash.
Despite laws saying otherwise, casinos thrive throughout the state, an underground billion-dollar industry that operates in a murky realm and engages in a perpetual cat-and-mouse game with the authorities. It is unlawful for slot-machine casinos to pay cash to gamblers, but it is legal to own, operate and play the machines in Texas, as long as the prizes are cheap noncash items such as coffee pots.
The legal gray area has grown even grayer as the state and several cities and counties have required gambling room operators to pay taxes and fees. But lax oversight by the state and local authorities helps explain how casino gambling has become so common even in a state like Texas, which publicly and officially is keeping casinos out while quietly and unofficially allowing them to proliferate.
Texas has 30,000 to 150,000 illegal slot machines that make an estimated $1.9 billion annually, according to the Texas Lottery Commission, which runs the state-approved lottery. The slot machines — known as eight-liners, for the variety of lines that need to match up for a player to win — are often hidden in abandoned or fake businesses, and have turned up in spaces that from the outside appeared to be karate schools, car dealerships, lawn mower repair shops and, in the South Texas town of Alton last year, a molecular lab.
“It’s like the poor man’s speakeasy in Texas,” said Richard B. Roper III, a former federal prosecutor who oversaw a 2007 case that shut an Amarillo gambling room that made up to $4,600 weekly and whose operators bribed a law enforcement official to avoid being raided. He added, “If the guy’s willing to pay off a cop, there’s got to be some money to be made.”
Some of the machines the authorities have confiscated in raids have official state tax decals — the Texas comptroller’s office collects $10 million annually on eight-liners, pool tables and other devices as part of a coin-operated machines tax. But state officials have no idea which slot machine operators are making illegal cash payouts, saying it is up to local authorities to enforce gambling laws.
Yet many local officials lack the resources and the will to prove whether cash is being exchanged. And some communities have had even less incentive to investigate gambling rooms since officials began requiring casinos to pay for costly permits, bringing in revenue to needy cities and counties.
Workers at two gambling rooms on Highway 83 in Starr County — one in the former tire shop and the other in a renovated gravel warehouse, both of which openly paid players in cash during a visit in February — claimed to have county permits but declined to comment further. “You’re not a cop, right?” a worker at one said. “Then we don’t have to talk to you.”
Starr County charges eight-liner operators $500 per machine, through an annual licensing fee approved by the County Commissioners’ Court last year. Starr County’s top elected official, County Judge Eloy Vera, did not respond to requests for comment, but he told a local television station, KGBT, that the fees generated $1.7 million.
“They frankly are turning a blind eye to illegality,” said the county attorney, Victor Canales Jr., who opposed the ordinance allowing eight-liner permits. “As pretty much everybody in the county knows, there are cash payouts. You see postings on Facebook of people winning.”
The industry has grown so large, particularly near the border, that it has attracted the attention of the federal Department of Homeland Security. And it has injected an illicit attraction into small towns that now hum at all hours with a scaled-down Las Vegas Strip experience of chiming slot machines, free all-you-can-eat buffets and uniformed security guards.
The gambling room on Highway 83 at the renovated gravel warehouse featured at least 100 machines; a giant, sparkling chandelier; pictures of Marilyn Monroe on the red walls; and free hot dogs. Dance music blared. One gambler wore medical scrubs.
Esperanza Salinas, 70, a retired middle-school teacher, went there with her 72-year-old husband, Jorge Salinas, and her brother-in-law, Armando Salinas Jr., 68, a former city commissioner in the town of Elsa. When she is not busy deer hunting or volunteering at her church, Mrs. Salinas said, she gambles on eight-liners about twice a month.
That February afternoon, the three of them spent a few hours gambling at the renovated tire shop and gravel warehouse. Mrs. Salinas lost $70, while her brother-in-law lost $50 and her husband won about $80.
“We’re not hurting anybody,” she said. “We see it as entertainment and have fun. I’ve never been in one where there’s a fight or an argument or a disagreement, anything like that. You don’t see any riffraff.”
Gamblers like Mrs. Salinas have an unlikely group to thank for the slot-machine boom: the Texas Legislature.
In 1993, lawmakers approved legislation that seemed so innocuous it was known as the “fuzzy animals” bill. It was intended to ensure that amusement games, such as those played by children at Chuck E. Cheese’s or a carnival that awarded stuffed animals, would not be considered unlawful gambling devices. The bill, signed into law by Gov. Ann W. Richards, legalized any device made for “bona fide amusement purposes” that awarded noncash prizes with a value of $5 or no more than 10 times the amount charged to play the game.
But operators of illegal gambling rooms began exploiting the law. Hundreds opened in Houston’s Harris County, until county leaders approved tough regulations that required them to close between 10 p.m. and 8 a.m., to have untinted windows and to be at least 1,500 feet from schools, churches and residential neighborhoods. In 2011 in Brownsville in South Texas, the federal Homeland Security Investigations began looking into money-laundering activity associated with eight-liner establishments. They uncovered an estimated 9,000 machines making $300 million annually in Cameron County.
“That amount of money is just a huge red flag for us at the federal level,” said Kevin W. Benson, assistant special agent in charge of Homeland Security Investigations in the Brownsville area.
Cameron County’s eight-liner industry has been largely dismantled, after the federal investigators shared their intelligence with the district attorney, Luis V. Saenz. About 40 raids have been conducted since April 2013 as part of Mr. Saenz’s Operation Bishop, including one at the American Legion in Port Isabel and others at empty houses that were turned into illegal gambling rooms with automated teller machines for customers to use.
“I’m not here to judge morally,” Mr. Saenz said. “I’m the chief law enforcement officer of the county, and it’s my job to enforce the law. We hit this place in La Feria that had been called ‘Little Vegas.’ It was like a compound where they had three different gaming rooms. They had their strobe lights, and their blinking lights, and their signs. They’re doing it out in the open, blatantly.”
Mr. Saenz’s focus on eight-liners has cost him votes, led to a death threat against him and supplied him with his own gambling room, of sorts. About 100 slot machines seized in the raids sit in a brick warehouse. Roughly 500 others were sold to a company that paid the county $100,000. Mr. Saenz said environmental regulations prohibited him from destroying confiscated eight-liners.
“I wanted to steamroll them to send a message,” he said.
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