Bill Text: TX SB1118 | 2011-2012 | 82nd Legislature | Introduced


Bill Title: Relating to the operation of video lottery games by licensed horse and greyhound racetrack operators, to a defense for the operation of video lottery by Indian tribes, to the authority of the Texas Lottery Commission and the Texas Racing Commission, and to the conduct of gambling in this state; providing penalties.

Spectrum: Slight Partisan Bill (Democrat 3-1)

Status: (Introduced - Dead) 2011-03-16 - Referred to State Affairs [SB1118 Detail]

Download: Texas-2011-SB1118-Introduced.html
  82R8713 YDB-F
 
  By: Hinojosa, Wentworth S.B. No. 1118
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the operation of video lottery games by licensed horse
  and greyhound racetrack operators, to a defense for the operation
  of video lottery by Indian tribes, to the authority of the Texas
  Lottery Commission and the Texas Racing Commission, and to the
  conduct of gambling in this state; providing penalties.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  The legislature finds and declares the
  following:
               (1)  The horse industry and agriculture industry have
  been vital components of this state's economy since the 19th
  century.
               (2)  The horse industry is an important element of the
  state's unique fabric, and it is imperative that the legislature
  take steps to bolster this industry.
               (3)  Live racing greatly benefits the horse industry of
  this state by providing critical financial and other support to
  horse shows and events, breeding programs, and employment in
  tourism and agricultural enterprises in this state.
               (4)  The operation of video lottery games at horse
  racetracks in the neighboring states of Louisiana, New Mexico, and
  Oklahoma provides racetracks in those states with an insurmountable
  economic advantage over racetracks in this state, resulting in much
  larger purse amounts in those states compared to the purse amounts
  offered by the racetracks in this state.
               (5)  The consequence of this economic disparity in
  purse amounts has been the exodus of horses, breeders, and other
  horse professionals to states with larger purse amounts, placing
  the horse industry in this state at an overwhelming disadvantage
  that threatens the very existence of a vital horse industry in this
  state.
               (6)  Authorizing video lottery games at licensed horse
  and greyhound racetracks in this state will:
                     (A)  remedy this economic disparity by increasing
  the purse amounts in this state and delivering a huge economic
  stimulus to this state through increased infrastructure and
  employment in and around licensed racetracks and throughout this
  state;
                     (B)  boost horse showing and breeding programs;
                     (C)  increase employment in tourism;
                     (D)  support programs to foster horse and
  greyhound breeding; and
                     (E)  improve the living and working conditions of
  personnel who work in the horse industry.
         SECTION 2.  Section 466.002, Government Code, is amended to
  read as follows:
         Sec. 466.002.  DEFINITIONS. In this chapter:
               (1)  "Commission" means the Texas Lottery Commission.
               (2)  "Communication technology" means the methods used
  and the components employed to facilitate the transmission of
  information, including transmission and reception systems that
  transmit information through wire, cable, radio, microwave, light,
  optics, or computer data networks.
               (3)  "Dedicated account" means a separate fiduciary
  financial account that is restricted under this chapter according
  to:
                     (A)  the source of the funds that may be deposited
  into the account; or
                     (B)  the enumerated purposes for which money from
  the account may be spent.
               (4)  "Director" means a [the] director employed by the
  executive director under Section 467.031 [of the division].
               (5)  "Disable," with respect to video lottery
  terminals, means the process that causes a video lottery terminal
  to cease functioning on issuance of a shutdown command from the
  video lottery central system.
               (6)  "Distribute," with respect to video lottery
  terminals, means the sale, lease, marketing, offer, or other
  disposition of a video lottery terminal, an electronic computer
  component of a video lottery terminal, the cabinet in which a video
  lottery terminal is housed, video lottery equipment, or video
  lottery game software intended for use or play in this state.
               (7) [(3)]  "Division" means the lottery division
  established by the commission under Chapter 467.
               (8)  "Electronic storage medium," with respect to video
  lottery, means the electronic medium on which the operation
  software for a game playable on a video lottery terminal is stored
  in the form of erasable programmable read only memory, data storage
  devices typically considered alterable but through software or
  hardware means have been rendered unalterable, compact disc-read
  only memory, flash random access memory, or other technology medium
  the commission approves for use in or with a video lottery terminal.
               (9) [(4)]  "Executive director" means the executive
  director of the commission.
               (10)  "Horsemen's organization" has the meaning
  assigned by Section 1.03, Texas Racing Act (Article 179e, Vernon's
  Texas Civil Statutes).
               (11)  "House-banked game" means a game of chance in
  which the house:
                     (A)  plays as a participant;
                     (B)  competes against all players, collects from
  all losers, and pays all winners; and
                     (C)  has an opportunity to win.
               (12)  "Indian lands" means land described by Section
  47(f), Article III, Texas Constitution.
               (13)  "Institutional investor" means:
                     (A)  a state or federal government pension plan;
  or
                     (B)  any of the following that meets the
  requirements of a "qualified institutional buyer" as defined in
  Rule 144A, Securities Act of 1933 (15 U.S.C. Sections 77a-77aa),
  and the rules and regulations adopted under that rule by the United
  States Securities and Exchange Commission:
                           (i)  a bank as defined by Section 3(a)(6),
  Securities Exchange Act of 1934 (15 U.S.C. Section 78c), and the
  rules and regulations adopted under that Act by the United States
  Securities and Exchange Commission;
                           (ii)  an insurance company as defined by
  Section 2(a)(17), Investment Company Act of 1940 (15 U.S.C. Section
  80a-2);
                           (iii)  an investment company registered
  under Section 8, Investment Company Act of 1940 (15 U.S.C. Section
  80a-8);
                           (iv)  an employee benefit plan or pension
  fund subject to the Employee Retirement Income Security Act of 1974
  (29 U.S.C. Section 1001 et seq.), excluding an employee benefit
  plan or pension fund sponsored by a publicly traded corporation
  registered with the Securities and Exchange Commission;
                           (v)  a group composed entirely of persons
  specified by this subdivision; or
                           (vi)  any other person the commission
  recognizes as an institutional investor for reasons consistent with
  the policies expressed in this chapter.
               (14) [(5)]  "Lottery" means the state lottery
  established and operated in accordance with the Texas Constitution
  under this chapter and includes the operation of a state-controlled
  video lottery system [procedures operated by the state under this
  chapter through which prizes are awarded or distributed by chance
  among persons who have paid, or unconditionally agreed to pay, for a
  chance or other opportunity to receive a prize].
               (15) [(6)]  "Lottery game" means an activity conducted
  lawfully and in accordance with the Texas Constitution and this
  chapter that is controlled by this state as part of the lottery and
  through which prizes are awarded or distributed by chance to
  persons who have paid or unconditionally agreed to pay, or who
  otherwise participate in a game, for a chance or other opportunity
  to receive a prize [includes a lottery activity].
               (16) [(7)]  "Lottery operator" means a person selected
  under Section 466.014(b) to operate a lottery game.
               (17)  "Manufacture," with respect to video lottery
  terminals, means to design, assemble, fabricate, produce, program,
  or make modifications to a video lottery terminal, an electronic
  computer component of a video lottery terminal, the cabinet in
  which a video lottery terminal is housed, video lottery equipment,
  or video lottery game software intended for use or play in this
  state.
               (18)  "Net terminal income" means the total amount of
  money paid to play video lottery games less the value of all credits
  redeemed, including any progressive prizes and bonuses, by the
  players of the video lottery games at a video lottery terminal
  establishment.  Promotional prizes unrelated to video lottery game
  wagers that are offered by a video lottery retailer or video lottery
  manager may not be deducted or otherwise considered credits
  redeemed for money by players for the purpose of determining net
  terminal income.
               (19)  "Pari-mutuel license holder" means a person
  licensed to conduct wagering on a greyhound race or a horse race
  under the Texas Racing Act (Article 179e, Vernon's Texas Civil
  Statutes).
               (20)  "Performance horse development fund" means a
  dedicated account in which a portion of net terminal income is
  deposited as provided by Subchapter K and that may be spent only for
  the benefit of certain non-racing horse activities in this state.
               (21)  "Person" means, for purposes of video lottery
  operations, any natural person, corporation, association, trust,
  partnership, limited partnership, joint venture, subsidiary, or
  other entity, regardless of its form, structure, or nature.
               (22) [(8)]  "Player" means a person who contributes any
  part of the consideration for a ticket or to play a video lottery
  game under this chapter.
               (23)  "Racetrack" has the meaning assigned by Section
  1.03, Texas Racing Act (Article 179e, Vernon's Texas Civil
  Statutes).
               (24)  "Racing facilities agreement" means a written
  agreement that:
                     (A)  specifies the amount of money or the
  percentage of revenue to be transferred by a racetrack and from the
  applicable Texas canine development fund or Texas equine
  development fund to the racing facilities capital improvement
  account; and
                     (B)  provides a plan for the use of the money
  deposited in the racing facilities capital improvement account.
               (25) [(9)]  "Sales agent" or "sales agency" means a
  person licensed under this chapter to sell tickets.
               (26)  "Slot machine" means a mechanical, electrical, or
  other type of device, contrivance, or machine not connected to the
  video lottery central system that plays or operates on insertion of
  a coin, currency, token, or similar object or on payment of any
  other consideration, and the play or operation of which, through
  the skill of the operator, by chance, or both, may deliver to the
  person playing or operating the machine, or entitle the person to
  receive, cash, premiums, merchandise, tokens, or any other thing of
  value, whether the payoff is made automatically from the machine or
  in any other manner.  The term does not include any equipment,
  machine, technological aid, or other device used or authorized in
  connection with the play of bingo under Chapter 2001, Occupations
  Code, or authorized under other law.
               (27)  "State horse breed registry" has the meaning
  assigned by Section 1.03, Texas Racing Act (Article 179e, Vernon's
  Texas Civil Statutes). The term includes the organizations
  identified in Section 9.02, Texas Racing Act (Article 179e,
  Vernon's Texas Civil Statutes).
               (28)  "Substantial interest holder" means any of the
  following that is not a bona fide lender, bank, or other authorized
  or licensed lending institution that holds a mortgage or other lien
  acquired in the ordinary course of business or a vendor of the
  applicant or license holder that is not otherwise a substantial
  business holder:
                     (A)  a person who directly, indirectly, or
  beneficially owns any interest in a privately owned corporation,
  association, trust, partnership, limited partnership, joint
  venture, subsidiary, or other entity, regardless of its form,
  structure, or nature;
                     (B)  a person who directly, indirectly, or
  beneficially owns 10 percent or more of any publicly owned
  corporation, association, trust, partnership, limited partnership,
  joint venture, subsidiary, or other entity, regardless of its form,
  structure, or nature;
                     (C)  a person associated with an applicant or
  license holder who the commission determines has the power or
  authority to:
                           (i)  control the activities of the applicant
  or license holder; or
                           (ii)  elect or select the executive
  director, the managers, the partners, or a majority of the board of
  directors of the applicant or license holder; and
                     (D)  any key personnel of a video lottery retailer
  or video lottery manager, including an executive director, officer,
  director, manager, member, partner, limited partner, executive,
  employee, or agent, who the commission determines has the power to
  exercise significant influence over decisions concerning any part
  of the applicant's or license holder's business operation.
               (29)  "Texas canine development fund" means, for a
  greyhound racetrack that operates a video lottery terminal
  establishment, the dedicated account in which a portion of the net
  terminal income is deposited as provided by Subchapter K.
               (30)  "Texas equine development fund" means, for a
  horse racetrack that operates a video lottery terminal
  establishment, the dedicated account in which a portion of the net
  terminal income is deposited as provided by Subchapter K.
               (31) [(10)]  "Ticket" means any tangible evidence
  issued to provide participation in a lottery game authorized by
  this chapter other than a video lottery game.
               (32)  "Video lottery central system" means the system
  of procedures and facilities operated and controlled by the
  commission that is designed to link together all video lottery
  terminals operated in this state and allows the commission to
  continuously monitor the activity of each video lottery terminal
  and to disable any video lottery terminal in this state.
               (33)  "Video lottery central system provider" means a
  person that, under a contract with the commission, provides the
  video lottery central system.
               (34)  "Video lottery equipment" means:
                     (A)  a video lottery terminal;
                     (B)  equipment, a component, or a contrivance used
  remotely or directly in connection with a video lottery terminal
  to:
                           (i)  affect the reporting of gross revenue
  and other accounting information, including a device for weighing
  and counting money;
                           (ii)  provide accounting, player tracking,
  bonuses, and in-house or wide-area prizes;
                           (iii)  monitor video lottery terminal
  operations; and
                           (iv)  provide for the connection of video
  lottery terminals to the video lottery central system; or
                     (C)  any other communications technology or
  equipment necessary for the operation of a video lottery terminal.
               (35)  "Video lottery game" means an
  electromechanically or electronically simulated game displayed on
  a video lottery terminal the outcome of which is determined solely
  by chance based on a computer-generated random selection of winning
  combinations of symbols or numbers other than typical roulette,
  dice, or baccarat game themes associated with casino gambling,
  except that game themes displaying symbols that appear to roll on
  drums to simulate a classic casino slot machine or themes of other
  card games and keno may be used.  The term includes video lottery
  games linked together between two or more video lottery terminals
  in one or more video lottery terminal establishments to provide
  progressive payments to winners of video lottery games.
               (36)  "Video lottery manager" means a person who is
  licensed by the commission under this chapter to manage a video
  lottery terminal establishment.
               (37)  "Video lottery retailer" means a racetrack or the
  operator of the premises of a pari-mutuel license holder at which a
  video lottery terminal establishment is located and that holds a
  video lottery retailer license under Subchapter K.
               (38)  "Video lottery system" has the meaning assigned
  to that term by Section 47a, Article III, Texas Constitution.
               (39)  "Video lottery terminal" means  an interactive
  electronic device that is capable of displaying video lottery
  games.
               (40)  "Video lottery terminal establishment" means
  premises at which the operation of video lottery terminals is
  authorized by the commission under this chapter in accordance with
  a license.
               (41)  "Video lottery terminal provider" means a person
  in the business of manufacturing or distributing video lottery
  terminals in this state.
               (42)  "Video lottery ticket" means the evidence issued
  by a video lottery terminal to reflect a credit balance from the
  play of a video lottery game.
         SECTION 3.  Section 466.003(b), Government Code, is amended
  to read as follows:
         (b)  Any [A] contract or authorized agreement between the
  division and a lottery operator, the video lottery central system
  provider, a video lottery terminal provider, or a manufacturer or
  distributor of video lottery games under Section 466.014(b) must
  contain a provision allowing the contract or authorized agreement 
  to be terminated without penalty should the division be abolished
  unless another state agency is assigned to regulate all video
  lottery game activity as required by this chapter.
         SECTION 4.  Section 466.004(a), Government Code, is amended
  to read as follows:
         (a)  A political subdivision of this state may not impose:
               (1)  a tax on the sale of a ticket;
               (2)  a tax on the payment of a prize under this chapter;
  [or]
               (3)  an ad valorem tax on tickets;
               (4)  a tax, fee, or other assessment on consideration
  paid to play a video lottery game; or
               (5)  a tax or fee for attendance or admission to a video
  lottery establishment or a racetrack at which a video lottery
  establishment is located unless specifically authorized by
  statute.
         SECTION 5.  Section 466.014, Government Code, is amended to
  read as follows:
         Sec. 466.014.  POWERS AND DUTIES OF COMMISSION AND EXECUTIVE
  DIRECTOR; CONTRACT AUTHORITY.  (a)  The commission and executive
  director have broad authority and shall exercise strict control and
  close supervision over [all] lottery games [conducted in this
  state] to promote and ensure integrity, security, honesty, and
  fairness in the operation and administration of the lottery.
         (b)  The executive director may contract with or employ a
  person to perform a function, activity, or service in connection
  with the operation of the lottery as prescribed by the executive
  director.  A contract relating to the operation of video lottery
  must be consistent with Subchapter K.  Except as provided by this
  subsection, a [A] person with whom the executive director contracts
  to operate a lottery game must be eligible for a sales agent license
  under this chapter [Section 466.155].  A person with whom the
  executive director contracts to provide the video lottery central
  system must be eligible under the same standards as those
  applicable to the registration or approval by the commission of a
  video lottery terminal provider in accordance with Subchapter K.
         (c)  The executive director may award a contract for lottery
  supplies, equipment, or services, including a contract under
  Subsection (b), pending the completion of any investigation and
  licensing, registration, or other affirmative regulatory approval 
  authorized or required by this chapter.  A contract awarded under
  this subsection must include a provision permitting the executive
  director to terminate the contract without penalty if the
  investigation reveals that the person to whom the contract is
  awarded would not be eligible for a sales agent license under
  Section 466.155 or with regard to video lottery does not satisfy the
  applicable requirements for licensing, registration, or other
  affirmative regulatory approval under Subchapter K.
         SECTION 6.  Section 466.015(b), Government Code, is amended
  to read as follows:
         (b)  The commission shall adopt rules to the extent they are
  not inconsistent with Chapters 551 and 552 governing the:
               (1)  security for the lottery and the commission,
  including the development of an internal security plan;
               (2)  apportionment of the total revenues from the sale
  of tickets and from all other sources in the amounts provided by
  this chapter;
               (3)  enforcement of prohibitions on the sale of tickets
  to or by an individual younger than 18 years of age or the sale of a
  video lottery game to or by an individual younger than 21 years of
  age; [and]
               (4)  enforcement of prohibitions on a person playing a
  lottery game by telephone; and
               (5)  enforcement of prohibitions provided by law on the
  sale of any purchase or play of a video lottery game.
         SECTION 7.  Section 466.017, Government Code, is amended to
  read as follows:
         Sec. 466.017.  AUDITS.  (a)  The commission [executive
  director] shall provide for a certified public accountant to
  conduct an independent audit of the commission's annual financial
  statements in accordance with generally accepted auditing
  standards that requires the accountant to express an opinion on the
  conformity of the financial statements with generally accepted
  accounting principles [for each fiscal year of all accounts and
  transactions of the lottery]. The certified public accountant may
  not have[, as determined by the executive director,] a significant
  financial interest in a sales agent, lottery vendor, [or] lottery
  operator, video lottery manager, video lottery retailer, video
  lottery terminal provider, or video lottery central system
  provider. The certified public accountant shall present an audit
  report to the executive director, the commission, the governor, the
  comptroller, and the legislature not later than the 30th day after
  the submission date for the annual financial report required by the
  General Appropriations Act.  [The report must contain
  recommendations to enhance the earnings capability of the lottery
  and improve the efficiency of lottery operations.] The state
  auditor may review the results of and working papers related to the
  audit.
         (b)  The records of a [Each] lottery operator, sales agent,
  video lottery manager, video lottery retailer, video lottery
  terminal provider, or video lottery central system provider
  [operator's and sales agent's records] are subject to audit by the
  commission and the state auditor. For the purpose of carrying out
  this chapter, the executive director or state auditor may examine
  all books, records, papers, or other objects that the executive
  director or state auditor determines are necessary for conducting a
  complete examination under this chapter and may also examine under
  oath any officer, director, or employee of a lottery operator, [or]
  sales agent, video lottery manager, video lottery retailer, video
  lottery terminal provider, or video lottery central system
  provider. The executive director or state auditor may conduct an
  examination at the principal office or any other office of the
  person subject to the audit [lottery operator or sales agent] or may
  require the person [lottery operator or sales agent] to produce the
  records at the office of the commission or state auditor. If a
  sales agent, video lottery manager, video lottery retailer, video
  lottery terminal provider, or video lottery central system provider
  refuses to permit an examination or to answer any question
  authorized by this subsection, the executive director may summarily
  suspend the license or registration of the sales agent, video
  lottery manager, video lottery retailer, or video lottery terminal
  provider under Section 466.160 or Subchapter K until the
  examination is completed as required. Section 321.013(h) does not
  apply to an audit of a lottery operator, [or] sales agent, video
  lottery manager, video lottery retailer, video lottery terminal
  provider, or video lottery central system provider.
         (c)  To protect the state's financial interest, the
  commission shall adopt reporting, monitoring, and auditing
  requirements for revenue generated by video lottery games that is
  distributed to or used by an organization through an allocation
  specified under Subchapter K.
         (d)  The commission may adopt the requirements for an
  organization described by Subsection (c) only after consultation
  with the organization. In adopting the requirements, the commission
  shall give consideration to the concerns of the organization.
         (e)  An organization described by Subsection (c) shall
  annually file with the commission a copy of an audit, conducted by
  an independent certified public accountant, on the receipt and use
  by the organization of the revenue generated by video lottery
  games.
         (f)  The commission may review any records or books of an
  organization submitting an audit to the commission as required
  under Subsection (e) as the commission determines necessary to
  confirm or further investigate the findings of the audit.
         (g)  The commission, after notice and a hearing in accordance
  with Chapter 2001, may suspend or prohibit the transfer of money to
  an organization under Subchapter K if:
               (1)  the commission determines the organization has
  failed to comply with the requirements adopted under Subsection
  (c); or
               (2)  following the audit required under Subsection (e),
  the commission determines that material questions have been raised
  on the use of the money by the organization.
         SECTION 8.  Section 466.018, Government Code, is amended to
  read as follows:
         Sec. 466.018.  INVESTIGATIONS.  The attorney general, the
  district attorney for Travis County, or the district attorney,
  criminal district attorney, or county attorney performing the
  duties of district attorney for the county in which the violation or
  alleged violation occurred may investigate a violation or alleged
  violation of this chapter and of the penal laws of this state by the
  commission or its employees, a sales agent, a lottery vendor, [or] a
  lottery operator, a video lottery manager, a video lottery
  retailer, a video lottery terminal provider, or a video lottery
  central system provider.
         SECTION 9.  Sections 466.020(c), (d), and (e), Government
  Code, are amended to read as follows:
         (c)  A security officer or investigator employed by the
  department of security or a peace officer who is working in
  conjunction with the commission or the Department of Public Safety
  in the enforcement of this chapter may:
               (1)  [,] without a search warrant, [may] search and
  seize a lottery vending machine, lottery computer terminal, video
  lottery terminal, or other lottery or gaming equipment that is
  located on premises for which a person holds a sales agent, video
  lottery retailer, or video lottery manager license issued under
  this chapter; or
               (2)  seize a lottery vending machine, lottery computer
  terminal, video lottery terminal, or other lottery or gaming
  equipment that is being used or is in the possession of any person
  in violation of this chapter.
         (d)  The Department of Public Safety or any other state or
  local law enforcement agency in this state, at the commission's
  request and in accordance with an interagency agreement, shall
  perform a full criminal background investigation of a prospective
  deputy or investigator of the department of security. The
  commission shall reimburse the agency [Department of Public Safety]
  for the actual costs of an investigation.
         (e)  At least once every two years, the executive director
  shall employ an independent firm that is experienced in security,
  including computer security and systems security, to conduct a
  comprehensive study of all aspects of lottery security, including:
               (1)  lottery personnel security;
               (2)  sales agent security;
               (3)  lottery operator and vendor security;
               (4)  security against ticket counterfeiting and
  alteration and other means of fraudulent winning;
               (5)  security of lottery drawings;
               (6)  lottery computer, data communications, database,
  and systems security;
               (7)  lottery premises and warehouse security;
               (8)  security of distribution of tickets;
               (9)  security of validation and payment procedures;
               (10)  security involving unclaimed prizes;
               (11)  security aspects of each lottery game;
               (12)  security against the deliberate placement of
  winning tickets in lottery games that involve preprinted winning
  tickets by persons involved in the production, storage,
  transportation, or distribution of tickets; [and]
               (13)  security of video lottery retailers, video
  lottery managers, video lottery terminal providers, and video
  lottery central system providers; and
               (14)  other security aspects of lottery operations,
  including video lottery game operations.
         SECTION 10.  Section 466.022, Government Code, is amended by
  amending Subsection (b) and adding Subsections (c), (d), (e), and
  (f) to read as follows:
         (b)  In addition to commission records excepted from
  disclosure under Chapter 552, the following information is
  confidential and is exempt from disclosure:
               (1)  security plans and procedures of the commission
  designed to ensure the integrity and security of the operation of
  the lottery;
               (2)  information of a nature that is designed to ensure
  the integrity and security of the selection of winning tickets or
  numbers in the lottery, other than information describing the
  general procedures for selecting winning tickets or numbers; [and]
               (3)  the street address and telephone number of a prize
  winner, if the prize winner has not consented to the release of the
  information; and
               (4)  information relating to all system operations of
  video lottery games, including the operation of the video lottery
  system, security related to video lottery games, and commission
  plans and procedures intended to ensure the integrity and security
  of the operation of video lottery games.
         (c)  Information that is confidential under Subsection
  (b)(4) includes information and data that:
               (1)  are furnished to the commission under Subchapter K
  or that may be otherwise obtained by the commission from any source;
               (2)  pertain to an applicant's criminal record,
  antecedents, and background and are furnished to or obtained by the
  commission from any source, including information obtained by the
  commission under Section 411.108(d);
               (3)  are provided to the commission, a commission
  employee, or an investigator acting on behalf of the commission by a
  governmental agency or an informer or on the assurance that the
  information will be held in confidence and treated as confidential;
               (4)  are obtained by the commission from a video
  lottery manager, video lottery retailer, video lottery terminal
  provider, or video lottery central system provider; or
               (5)  are prepared or obtained by an agent or employee of
  the commission relating to a license, certificate of registration,
  or renewal application, a finding of suitability, or any other
  affirmative regulatory approval required under Subchapter K.
         (d)  Information that qualifies as confidential under
  Subsection (b)(4) may be disclosed in whole or in part only as
  necessary to administer this chapter or under a court order. The
  commission, subject to appropriate procedures, may disclose the
  information and data to an authorized agent of a political
  subdivision of this state, the United States, another state or a
  political subdivision of another state, a tribal law enforcement
  agency, or the government of a foreign country.
         (e)  For the annual report required under Section 466.016,
  the commission may disclose a compilation of statistical
  information that is otherwise confidential under Subsection (b)(4)
  if the compilation does not disclose the identity of an applicant,
  license or registration holder, or video lottery establishment.
         (f)  Notwithstanding any other provision of state law, the
  information provided under Subsection (d) or (e) may not otherwise
  be disclosed without specific commission authorization.
         SECTION 11.  Section 466.024, Government Code, is amended to
  read as follows:
         Sec. 466.024.  PROHIBITED GAMES.  (a)  The executive
  director, [or] a lottery operator, a video lottery manager, a video
  lottery retailer, a video lottery terminal provider, or a video
  lottery central system provider may not establish or operate a
  lottery game in which the winner is chosen on the basis of the
  outcome of a live sports event.
         (b)  The [commission shall adopt rules prohibiting the]
  operation of any game using a video lottery machine or other
  gambling device that is not connected to the video lottery central
  system and regulated by this state as required by Section 47a,
  Article III, Texas Constitution, and this chapter is prohibited 
  [machine].
         (c)  In this section, "sports[:
               [(1)  "Sports] event" means a football, basketball,
  baseball, or similar game, or a horse or dog race on which
  pari-mutuel wagering is allowed.
               [(2)     "Video lottery machine" or "machine" means any
  electronic video game machine that, upon insertion of cash, is
  available to play or simulate the play of a video game, including
  video poker, keno, and blackjack, using a video display and
  microprocessors in which the player may receive free games or
  credits that can be redeemed for cash, coins, or tokens, or that
  directly dispenses cash, coins, or tokens.]
         SECTION 12.  Section 466.025, Government Code, is amended to
  read as follows:
         Sec. 466.025.  REPORTS OF TICKETS SOLD, NET TERMINAL INCOME,
  AND PRIZES AWARDED.  For each lottery game, other than a video
  lottery game, after the last date on which a prize may be claimed
  under Section 466.408(d), the director shall prepare a report that
  shows the total number of tickets sold and the number and amounts of
  prizes awarded in the game. The report must be available for public
  inspection.  For video lottery games, the director shall prepare a
  weekly report that shows net terminal income for the preceding
  week.
         SECTION 13.  Section 466.103(a), Government Code, is amended
  to read as follows:
         (a)  Except as provided by Subsection (b), the executive
  director may not award a contract for the purchase or lease of
  facilities, goods, or services related to lottery operations to a
  person who:
               (1)  would be denied a license as a sales agent under
  Section 466.155; or
               (2)  with regard to video lottery equipment:
                     (A)  is not a registered video lottery terminal
  provider if registration is required; or
                     (B)  would be considered unsuitable to be a video
  lottery terminal provider under Subchapter K.
         SECTION 14.  Section 466.151(b), Government Code, is amended
  to read as follows:
         (b)  The executive director may establish a provisional
  license or other classes of licenses necessary to regulate and
  administer the quantity and type of lottery games provided at each
  licensed location of a sales agent.
         SECTION 15.  Subchapter E, Chapter 466, Government Code, is
  amended by adding Section 466.206 to read as follows:
         Sec. 466.206.  CRIMINAL HISTORY INVESTIGATION FOR VIDEO
  LOTTERY.  Except as otherwise provided by this section, Sections
  466.020 and 466.201, and Subchapter K, a criminal history
  investigation of a video lottery retailer, video lottery manager,
  video lottery terminal provider, or video lottery central system
  provider is governed by commission rules adopted under Subchapter
  K.  As applicable, the commission shall consider information
  obtained through a criminal history investigation conducted under
  the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).
         SECTION 16.  Section 466.252, Government Code, is amended to
  read as follows:
         Sec. 466.252.  PLAYER [PURCHASE OF TICKET] AGREEMENT TO
  ABIDE BY RULES AND INSTRUCTIONS. (a)  By purchasing a ticket in a
  particular lottery game or participating as a player in a lottery
  game, a player agrees to abide by and be bound by the commission's
  rules and instructions, including the rules or instructions
  applicable to the particular lottery game involved. The player
  also acknowledges that the determination of whether the player is a
  valid winner is subject to:
               (1)  the commission's rules, instructions, and claims
  procedures, including those developed for the particular lottery
  game involved; [and]
               (2)  any validation tests established by the commission
  for the particular lottery game involved; and
               (3)  the limitations and other provisions prescribed by
  this chapter.
         (b)  If the lottery uses tickets, an abbreviated form of the
  rules or a reference to the rules may appear on the tickets.
         SECTION 17.  Section 466.3011, Government Code, is amended
  to read as follows:
         Sec. 466.3011.  VENUE.  Venue is proper in Travis County or
  any county in which venue is proper under Chapter 13, Code of
  Criminal Procedure, for:
               (1)  an offense under this chapter;
               (2)  an offense under the Penal Code, if the accused:
                     (A)  is a lottery operator, lottery vendor, sales
  agent, video lottery manager, video lottery retailer, video lottery
  terminal provider, video lottery central system provider, or
  employee of the division; and
                     (B)  is alleged to have committed the offense
  while engaged in lottery activities, including video lottery
  activities; or
               (3)  an offense that involves property consisting of or
  including lottery tickets under Title 7 or 11, Penal Code.
         SECTION 18.  Subchapter G, Chapter 466, Government Code, is
  amended by adding Section 466.3031 to read as follows:
         Sec. 466.3031.  UNAUTHORIZED OPERATION, USE, OR POSSESSION
  OF VIDEO LOTTERY TERMINAL.  (a)  A person may not operate, use, or
  possess a video lottery terminal unless the operation, use, or
  possession is expressly authorized by this chapter or other law.
         (b)  Except for transport to or from a video lottery
  establishment and as provided by this chapter or other law, a person
  commits an offense if the person operates, uses, or possesses any
  video lottery terminal that is not at all times connected to the
  video lottery central system or that does not generate revenue for
  this state, except funds retained by the commission to pay
  administrative costs.  An offense under this subsection is a felony
  of the third degree.
         (c)  Notwithstanding Subsection (b), a video lottery
  retailer, video lottery manager, or registered or approved video
  lottery terminal provider may store or possess a video lottery
  terminal as authorized by the commission, and the commission may
  possess video lottery terminals for study and evaluation.
         SECTION 19.  Section 466.305(a), Government Code, is amended
  to read as follows:
         (a)  A sales agent, video lottery manager, or video lottery
  retailer, or an employee of a sales agent, video lottery manager, or
  video lottery retailer, commits an offense if the person
  intentionally or knowingly sells a ticket to another person or
  allows the person to play or conduct a game on a video lottery
  terminal by extending credit or lending money to the person to
  enable the person to purchase the ticket or play the game.
         SECTION 20.  The heading to Section 466.3051, Government
  Code, is amended to read as follows:
         Sec. 466.3051.  SALE [OF TICKET] TO OR PURCHASE OF LOTTERY
  TICKET BY PERSON YOUNGER THAN 18; PLAY OF VIDEO LOTTERY GAME BY
  PERSON YOUNGER THAN 21 [YEARS OF AGE].
         SECTION 21.  Section 466.3051, Government Code, is amended
  by adding Subsections (a-1) and (b-1) and amending Subsections (b)
  through (f) to read as follows:
         (a-1)  A video lottery manager, a video lottery retailer, or
  an employee of a video lottery manager or video lottery retailer
  commits an offense if the person intentionally or knowingly allows
  a person younger than 21 years of age to play a video lottery game.
         (b)  An individual who is younger than 18 years of age
  commits an offense if the individual:
               (1)  purchases a lottery ticket; or
               (2)  falsely represents the individual to be 18 years
  of age or older by displaying evidence of age that is false or
  fraudulent or misrepresents in any way the individual's age in
  order to purchase a lottery ticket.
         (b-1)  An individual who is younger than 21 years of age
  commits an offense if the individual:
               (1)  plays a video lottery game; or
               (2)  falsely represents the individual to be 21 years
  of age or older by displaying evidence of age that is false or
  fraudulent or misrepresents in any way the individual's age in
  order to play a video lottery game.
         (c)  A person 18 years of age or older may purchase a lottery
  ticket to give as a gift to another person, including an individual
  younger than 18 years of age.
         (d)  It is a defense to the application of Subsection (b)
  that the individual younger than 18 years of age is participating in
  an inspection or investigation on behalf of the commission or other
  appropriate governmental entity regarding compliance with this
  section. It is a defense to the application of Subsection (b-1) that
  the individual younger than 21 years of age is participating in an
  inspection or investigation on behalf of the commission or other
  appropriate governmental entity regarding compliance with this
  section.
         (e)  An offense under Subsection (a) or (a-1) is a Class C
  misdemeanor.
         (f)  An offense under Subsection (b) or (b-1) is punishable
  by a fine not to exceed $250.
         SECTION 22.  Section 466.306, Government Code, is amended to
  read as follows:
         Sec. 466.306.  FORGERY; ALTERATION OF TICKET.  (a)  A person
  commits an offense if the person intentionally or knowingly alters
  or forges a ticket or video lottery ticket.
         (b)  An offense under this section is a felony of the third
  degree unless it is shown on the trial of the offense that the prize
  alleged to be authorized by the ticket or video lottery ticket
  forged or altered is greater than $10,000, in which event the
  offense is a felony of the second degree.
         SECTION 23.  Section 466.309(a), Government Code, is amended
  to read as follows:
         (a)  A person commits an offense if the person intentionally
  or knowingly tampers with, damages, defaces, or renders inoperable
  any vending machine, electronic computer terminal, video lottery
  terminal or other video lottery equipment, or other mechanical
  device used in a lottery game.
         SECTION 24.  The heading to Section 466.317, Government
  Code, is amended to read as follows:
         Sec. 466.317.  PROHIBITION AGAINST SALE OF CERTAIN LOTTERY
  TICKETS OR OPERATION OF CERTAIN VIDEO LOTTERY SYSTEMS.
         SECTION 25.  Section 466.317, Government Code, is amended by
  adding Subsection (a-1) and amending Subsection (c) to read as
  follows:
         (a-1)  A person may not control or operate a video lottery
  system in this state except as provided by this chapter or other
  law.
         (c)  A person commits an offense if the person violates this
  section. An offense under this section is a felony of the third
  degree [Class A misdemeanor].
         SECTION 26.  Section 466.355(a), Government Code, is amended
  to read as follows:
         (a)  The state lottery account is a special account in the
  general revenue fund. The account consists of all revenue received
  from the sale of tickets, license and application fees under this
  chapter, other than Subchapter K, and all money credited to the
  account from any other fund or source under law. Interest earned by
  the state lottery account shall be deposited in the unobligated
  portion of the general revenue fund.
         SECTION 27.  Subchapter H, Chapter 466, Government Code, is
  amended by adding Section 466.360 to read as follows:
         Sec. 466.360.  VIDEO LOTTERY TERMINAL REVENUE.  Revenue
  generated from the operation of video lottery terminals is governed
  by Subchapter K and commission rules.
         SECTION 28.  Section 466.402, Government Code, is amended by
  adding Subsection (e) to read as follows:
         (e)  This section does not apply to the payment of prizes for
  video lottery games governed by Subchapter K.
         SECTION 29.  Chapter 466, Government Code, is amended by
  adding Subchapter K to read as follows:
  SUBCHAPTER K. VIDEO LOTTERY
         Sec. 466.501.  LEGISLATIVE FINDINGS AND DECLARATIONS.  The
  legislature finds and declares the following:
               (1)  The purpose and intent of this subchapter is to
  carry out the intent of the voters as established by the approval of
  Section 47a, Article III, Texas Constitution, to expand the
  revenue-generating ability of the state lottery by authorizing this
  state to operate a video lottery system consistent with public
  policy strictly limiting the expansion of gambling in this state.
               (2)  Except as expressly authorized under other law,
  the people of this state intend to allow only state-regulated video
  lottery games to be conducted in this state and only in locations at
  which pari-mutuel wagering is conducted at racetracks.
               (3)  The video lottery games operated at racetracks
  under this subchapter are regulated by this state in a manner that
  allows this state to continuously monitor all video lottery
  terminals and to disable any video lottery terminal for the
  protection of the public and this state.
               (4)  Through the video lottery system this state will
  monitor the network of video lottery terminals to ensure maximum
  security unique to state-regulated gambling. Except as may
  otherwise be provided by state or federal law governing gaming on
  Indian lands, each operating video lottery terminal in this state
  will be connected to a video lottery central system.
               (5)  Limited gaming is intended to enhance live horse
  and greyhound racing, horse shows and events, horse and greyhound
  breeding programs, entertainment, and employment in tourism and
  agricultural industries of Texas and to assist this state's horse
  and greyhound racing industry, support programs intended to foster
  and promote horse and greyhound breeding, and improve the living
  and working conditions of personnel who work and reside in and
  around the stable and backside areas of racetracks.
               (6)  In authorizing only a state-regulated and
  state-operated video lottery central system and state-regulated
  video lottery terminals in limited locations and continuing the
  general prohibition on gambling in this state as a matter of public
  policy, this state is protecting the state's legitimate interests
  by restricting such activity. By limiting the operation of video
  lottery terminals to those connected to the state-regulated video
  lottery system on certain land with certain types of games, the
  legislature seeks to foster this state's legitimate sovereign
  interest in regulating the growth of gambling activities in this
  state.
               (7)  This subchapter is game-specific and may not be
  construed to allow the operation of any other form of gambling
  unless specifically allowed by this subchapter. This subchapter
  does not allow the operation of dice games, roulette wheels,
  house-banked games, including house-banked card games, or games in
  which winners are determined by the outcome of a live sports contest
  that are expressly prohibited under other state law.
         Sec. 466.502.  CONSTRUCTION; APPLICABILITY OF OTHER LAWS.  
  (a)  This subchapter applies uniformly throughout this state and
  all political subdivisions of this state.
         (b)  To the extent of any inconsistency between this
  subchapter and the Texas Racing Act (Article 179e, Vernon's Texas
  Civil Statutes), the Alcoholic Beverage Code, or other law, this
  subchapter controls.
         (c)  To the extent of any inconsistency between Chapter 2003
  and this subchapter or a commission rule governing video lottery
  terminals, this subchapter or the commission rule controls in all
  matters related to video lottery terminals.
         (d)  Video lottery equipment operated under commission
  authority and this subchapter is exempt from 15 U.S.C. Section
  1172.
         Sec. 466.503.  CONDUCT RELATED TO OPERATION OF VIDEO LOTTERY
  TERMINALS BY INDIAN TRIBES. Notwithstanding any provision of this
  chapter, conduct authorized in connection with video lottery
  terminals under this subchapter, including conduct in which a
  person who holds a license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval under this
  subchapter is authorized to engage under the license, certificate
  of registration, finding of suitability, or other affirmative
  regulatory approval, is also authorized for the conduct of video
  lottery terminals by Indian tribes that is allowed under other law.
  [Section 466.504 reserved for expansion]
         Sec. 466.505.  AUTHORITY TO OPERATE VIDEO LOTTERY SYSTEM.  
  The commission may implement and operate a video lottery system and
  regulate the operation of video lottery terminals at racetracks in
  accordance with this subchapter and the Texas Racing Act (Article
  179e, Vernon's Texas Civil Statutes).
         Sec. 466.506.  VIDEO LOTTERY GAMES; STATE OWNERSHIP AND
  PROPRIETARY INTEREST.  For purposes of this subchapter, this state
  may acquire a proprietary interest in video lottery game software
  through:
               (1)  ownership of the software; or
               (2)  an exclusive product license agreement with a
  provider in which the provider retains copyrighted ownership of the
  software but the license granted to this state is nontransferable
  and authorizes this state to operate the software program, solely
  for the state's own use, on the video lottery central system and
  video lottery terminals connected to the video lottery central
  system.
         Sec. 466.507.  STATE CONTROL OF VIDEO LOTTERY SYSTEM.  (a)  
  In accordance with Section 47a, Article III, Texas Constitution,
  the commission shall control and regulate the video lottery system
  and the video lottery central system through which this state has
  the exclusive and unilateral ability to monitor activity of video
  lottery terminals and remotely disable video lottery terminals for
  the public safety, health, and welfare or the preservation of the
  integrity of the lottery and to prevent any financial loss to this
  state.
         (b)  This section does not affect or restrict the ability of
  a video lottery manager or video lottery retailer to monitor
  activity of video lottery terminals and to disable video lottery
  terminals in accordance with commission rules.
         (c)  The commission may disable a video lottery terminal if a
  video lottery retailer's or video lottery manager's license is
  revoked, surrendered, or summarily suspended under this subchapter
  and to prevent any financial loss to this state.
  [Sections 466.508-466.509 reserved for expansion]
         Sec. 466.510.  VIDEO LOTTERY CENTRAL SYSTEM.  (a)  The
  commission shall establish or cause to be established a video
  lottery central system to link all video lottery terminals in the
  video lottery system. The video lottery central system must
  provide the auditing, security, and other information required by
  the commission.
         (b)  The commission shall provide to a registered or approved
  video lottery terminal provider or an applicant applying for
  registration or approval as a video lottery terminal provider the
  protocol documentation data necessary to enable the provider's or
  applicant's video lottery terminals to communicate with the
  commission's video lottery central system for transmission of
  auditing program information and for activation and disabling of
  video lottery terminals.
         (c)  The video lottery central system design may not limit or
  preclude potential providers from providing state-of-the-art,
  industry-standard video lottery terminals and associated equipment
  such as player tracking systems, accounting systems, progressive
  systems, and bonusing systems, except for providers that fail to
  meet registration or approval specifications established by the
  commission.
         (d)  The commission may contract with a video lottery central
  system provider to establish the video lottery central system.
         Sec. 466.511.  VIDEO LOTTERY TERMINAL PROVIDER:  
  REGISTRATION OR APPROVAL REQUIRED.  (a)  A person may not
  manufacture or distribute video lottery equipment for use or play
  in this state unless the person is registered as a video lottery
  terminal provider or is otherwise approved by the commission to
  manufacture or distribute video lottery equipment in this state.  A
  video lottery retailer may also hold a license as a video lottery
  terminal provider under this section.
         (b)  Unless suspended or revoked, the registration or
  approval expires on the date specified by the commission, which may
  not be later than the 10th anniversary of the date of the
  registration or approval.  A person may renew an unexpired
  registration or approval by paying the required renewal fee and
  complying with the requirements of this subchapter and commission
  rule.
         (c)  To be eligible for registration or approval as required
  by this section, an applicant must satisfy all applicable
  requirements under this subchapter.
         Sec. 466.512. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION;
  CHANGE IN INFORMATION.  (a)  The commission shall adopt rules
  governing the registration or approval of video lottery terminal
  providers and the information an applicant must provide to the
  commission. The rules must require the application and any other
  form or document submitted to the commission by or on behalf of the
  applicant to determine the applicant's qualification under this
  section to be sworn to or affirmed before an officer qualified to
  administer oaths.
         (b)  The applicant must demonstrate the ability to comply
  with all manufacturing, quality control, and operational
  restrictions imposed on authorized video lottery equipment,
  patented or otherwise restricted video lottery games, or other
  video lottery equipment that the applicant seeks to manufacture or
  distribute for use in this state. The registration or approval
  process must include an on-site review of the applicant's
  manufacturing equipment and process for each separate type of
  authorized video lottery equipment to ensure compliance with the
  requirements of this chapter and commission rules.
         (c)  Not later than the 30th day after the date of any change
  in the information submitted on or with the application form, the
  applicant shall notify the commission of the change, including a
  change that occurs after the registration or other approval has
  been granted.
         (d)  The applicant shall comply with all federal and state
  laws, local ordinances, and rules.
         Sec. 466.513.  VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION
  FEE.  (a)  An applicant seeking registration or approval or renewal
  of registration or approval as a video lottery terminal provider
  must pay a nonrefundable application fee in the amount prescribed
  by commission rule that is sufficient to pay the costs to the
  commission of administering and approving video lottery terminals.
         (b)  Application fees paid under this section shall be
  retained by the commission and may be used only to defray costs
  incurred in the administration and enforcement of this chapter
  relating to the operation of video lottery terminals.
  [Sections 466.514-466.519 reserved for expansion]
         Sec. 466.520.  VIDEO LOTTERY RETAILER OR VIDEO LOTTERY
  MANAGER LICENSE REQUIRED.  Except as specifically provided by other
  law, a person may not own or operate a video lottery terminal if the
  person does not satisfy the requirements of this subchapter and is
  not licensed by the commission to act as a video lottery retailer or
  video lottery manager.
         Sec. 466.521.  VIDEO LOTTERY RETAILER OR VIDEO LOTTERY
  MANAGER: APPLICATION AND QUALIFICATION.  (a)  An applicant for a
  video lottery retailer or video lottery manager license must:
               (1)  hold a valid racetrack or pari-mutuel license
  originally granted by the Texas Racing Commission under the Texas
  Racing Act (Article 179e, Vernon's Texas Civil Statutes) on or
  before January 1, 2011, and the location for the video lottery
  terminal establishment must be in the county in which the license
  holder's racetrack was authorized to operate under that license;
               (2)  have a valid and executed contract with a
  racetrack or pari-mutuel license holder who satisfies the
  requirements of Subdivision (1) to act as a video lottery manager
  for the racetrack subject to licensing under this subchapter; or
               (3)  demonstrate to the commission's satisfaction that
  the applicant seeks to act as a video lottery manager for a
  federally recognized Indian tribe.
         (b)  Each officer, partner, director, key employee,
  substantial interest holder, video lottery game operation
  employee, and owner of video lottery game operations must be
  eligible and maintain eligibility in accordance with this
  subchapter to be involved in video lottery games in this state.
         (c)  The commission shall issue a video lottery retailer or
  manager license to an applicant who meets the criteria established
  by the commission rules.
         (d)  The commission shall adopt rules to implement this
  section.
         Sec. 466.522.  VIDEO LOTTERY RETAILER OR VIDEO LOTTERY
  MANAGER: APPLICATION FEE.  (a)  An applicant for a video lottery
  retailer or video lottery manager license shall submit a
  nonrefundable application processing fee in the amount prescribed
  by commission rule that is sufficient and reasonable to pay the
  costs of determining the applicant's eligibility, not to exceed
  $5,000.
         (b)  An application may not be processed until the applicant
  pays the application fee. If the application fee is not received by
  the 30th day after the date the commission notifies the applicant of
  the amount of the fee, the application is considered withdrawn and
  may not be considered by the commission.
  [Sections 466.523-466.524 reserved for expansion]
         Sec. 466.525.  VIDEO LOTTERY TERMINAL ESTABLISHMENT
  LICENSE: REQUIREMENTS; LOCATION.  (a)  An applicant for a video
  lottery terminal establishment license must ensure that the
  facility for the establishment will comply with all applicable
  building codes and rules of the commission.  The rules adopted by
  the commission relating to facilities for video lottery
  establishments must relate solely to this state's interest in the
  operation of video lottery terminals.
         (b)  A video lottery terminal establishment shall provide
  office space for the commission sufficient for at least one
  commission employee.
         (c)  An applicant for a video lottery terminal establishment
  license or a license holder shall provide the information required
  by commission rule relating to the applicant's or license holder's
  video lottery terminal establishment and update the information at
  least annually.
         (d)  Notwithstanding Section 466.155, the commission may not
  deny, suspend, or revoke a license under this subchapter based on
  the fact that a video lottery terminal establishment or a proposed
  video lottery terminal establishment is a location for which a
  person holds a wine and beer retailer's permit, mixed beverage
  permit, mixed beverage late hours permit, private club registration
  permit, or private club late hours permit, issued under Chapter 25,
  28, 29, 32, or 33, Alcoholic Beverage Code.
         (e)  A video lottery terminal establishment may be located
  only at the premises of a racetrack.
         (f)  Notwithstanding Subsections (a) and (b) and on request
  of an applicant for a video lottery terminal establishment license,
  the commission by rule shall authorize the applicant, on receipt of
  a license issued under this chapter to operate a video lottery
  terminal establishment at a racetrack that meets the requirements
  of Section 466.555, to construct temporary facilities to house and
  operate video lottery equipment for not more than two years. A
  racetrack that is granted a waiver described by Section 466.555(h)
  is considered to meet the requirements of Section 466.555 for
  purposes of this subsection.
         Sec. 466.526.  LICENSE HOLDER AS SALES AGENT.  The holder of
  a video lottery retailer or video lottery manager license may
  operate as a sales agent for lottery tickets in accordance with this
  chapter.
         Sec. 466.527.  TERM; RENEWAL ELIGIBILITY.  (a)  Unless
  suspended or revoked, a license, certificate of registration,
  finding of suitability, or other affirmative regulatory approval
  issued under this subchapter, other than a video lottery retailer
  license, expires on the date specified in the license, certificate,
  finding, or approval, which may not be later than the 10th
  anniversary of the date of issuance.
         (b)  A video lottery retailer license is valid for the same
  term as the retailer's racetrack or pari-mutuel license issued
  under the Texas Racing Act (Article 179e, Vernon's Texas Civil
  Statutes) unless suspended or revoked.  The commission may charge
  an annual fee not to exceed $50,000 to the holder of a video lottery
  retailer license.
         (c)  To be eligible for renewal of a license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval, an applicant must satisfy all applicable
  requirements under this subchapter.
         Sec. 466.528.  RULES FOR ADDITIONAL QUALIFICATIONS.  The
  commission by rule may establish other license, certificate,
  finding of suitability, or approval qualifications the commission
  determines are in the public interest and consistent with the
  declared policy of this state.
         Sec. 466.529.  APPLICATION AS REQUEST FOR CHARACTER
  DETERMINATION.  An application under this subchapter to receive or
  renew a license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval constitutes
  a request for a determination of the applicant's general character,
  integrity, and ability to participate or engage in or be associated
  with the operation of video lottery terminals.
         Sec. 466.530.  IMMUNITY FOR STATEMENT MADE IN PROCEEDING OR
  INVESTIGATION.  Any written or oral statement made in the course of
  an official commission proceeding or investigative activities
  related to an application for commission licensing, registration,
  suitability determination, or other affirmative regulatory
  approval under this subchapter, by any member or agent or any
  witness testifying under oath, that is relevant to the purpose of
  the proceeding is absolutely privileged and does not impose
  liability for defamation or constitute a ground for recovery in any
  civil action.
         Sec. 466.531.  SUITABILITY FINDING.  To promote the
  integrity and security of the video lottery system, the commission
  in its discretion may require a suitability finding for any person
  doing business with or in relation to the operation of video lottery
  terminals who is not otherwise required to obtain a license,
  registration, or approval from the commission for the person's
  video lottery-related operations.
         Sec. 466.532.  SUMMARY SUSPENSION OF VIDEO LOTTERY RETAILER
  OR VIDEO LOTTERY MANAGER LICENSE; TERMINAL DISABLED.  (a)  The
  commission may summarily suspend the license of a video lottery
  retailer or video lottery manager without notice or hearing if the
  commission finds the action is necessary to maintain the integrity,
  security, honesty, or fairness of the operation or administration
  of the lottery or to prevent financial loss to this state and:
               (1)  the license holder fails to deposit money received
  from video lottery terminal operations as required by this
  subchapter or commission rule;
               (2)  an event occurs that would render the license
  holder ineligible for a license under this subchapter;
               (3)  the license holder refuses to allow the
  commission, the commission's agents, or the state auditor, or their
  designees, to examine the license holder's books, records, papers,
  or other objects under Section 466.017; or
               (4)  the executive director learns the license holder
  failed to disclose information that would, if disclosed, render the
  video lottery retailer or video lottery manager ineligible for a
  license under this subchapter.
         (b)  A summary suspension under this section must comply with
  the notice and procedure requirements provided by Section 466.160.
         (c)  The commission may disable a video lottery terminal
  operated by a license holder under this subchapter at the time:
               (1)  a proceeding to summarily suspend the license is
  initiated;
               (2)  the commission discovers the license holder failed
  to deposit money received from video lottery terminal operations as
  required if the license is being summarily suspended under this
  section; or
               (3)  an act or omission occurs that, under commission
  rules, justifies the termination of video lottery terminal
  operations to:
                     (A)  protect the integrity of the lottery or the
  public health, welfare, or safety; or
                     (B)  prevent financial loss to this state.
         (d)  The commission shall immediately disable a video
  lottery terminal if necessary to protect the public health,
  welfare, or safety.
         Sec. 466.533.  LICENSING, REGISTRATION, SUITABILITY, AND
  REGULATORY APPROVAL AS REVOCABLE PERSONAL PRIVILEGES.  (a)  The
  purchaser or successor of a person who holds a license,
  registration, finding of suitability, or other affirmative
  regulatory approval under this subchapter must independently
  qualify for a license, registration, suitability, or approval
  required by this subchapter.
         (b)  The following acts void the license, registration,
  finding of suitability, or other affirmative regulatory approval of
  the holder unless approved in advance by the commission:
               (1)  the transfer, sale, or other disposition of an
  interest in the holder that results in a change in the identity of a
  substantial interest holder; or
               (2)  the sale of the assets of the holder, other than
  assets bought and sold in the ordinary course of business, or any
  interest in the assets, to any person not already determined to have
  met the applicable qualifications of this subchapter.
  [Sections 466.534-466.535 reserved for expansion]
         Sec. 466.536.  VIDEO LOTTERY TERMINAL.  The commission shall
  provide all video lottery retailers or video lottery managers with
  a list of registered video lottery terminal providers, video
  lottery games, and video lottery terminals authorized for operation
  under this subchapter.
         Sec. 466.537.  VIDEO LOTTERY TERMINAL: DISTRIBUTION AND
  COMMISSION APPROVAL.  (a)  A video lottery terminal provider may not
  distribute a video lottery terminal or other video lottery
  equipment for placement at a video lottery terminal establishment
  in this state unless the video lottery terminal or other video
  lottery equipment has been approved by the commission.
         (b)  Only a video lottery terminal provider registered with
  or approved by the commission may apply for approval of a video
  lottery terminal or other video lottery equipment.
         (c)  Not later than the 10th day before the date of shipment
  to a location in this state, a video lottery terminal provider shall
  file a report with the commission itemizing all video lottery
  terminals and other video lottery equipment to be provided to a
  video lottery retailer or video lottery manager in the shipment.
         Sec. 466.538.  VIDEO LOTTERY TERMINAL: TESTING; REPORT.  (a)  
  A video lottery terminal provider shall submit two copies of
  terminal illustrations, schematics, block diagrams, circuit
  analysis, technical and operation manuals, and any other
  information requested by the commission for the purpose of
  analyzing and testing the video lottery terminal or other video
  lottery equipment.
         (b)  The commission may require a working model of a video
  lottery terminal to be provided to the commission unless the video
  lottery terminal provider provides a certification from an
  independent, commission-approved testing laboratory that the video
  lottery terminal is compatible with the state's video lottery
  system and functions as required by the commission.
         Sec. 466.539.  VIDEO LOTTERY TERMINAL: INSTALLATION;
  MODIFICATION REQUEST.  (a)  A video lottery terminal provider is
  responsible for the assembly and installation of all video lottery
  terminals and related video lottery equipment.
         (b)  A video lottery terminal provider, video lottery
  retailer, or video lottery manager may not change the assembly or
  operational functions of a video lottery terminal authorized by the
  commission for placement in this state unless a request for
  modification of an existing video lottery terminal prototype is
  approved by the commission. The request must contain:
               (1)  a detailed description of the type of change;
               (2)  a detailed description of the reasons for the
  change; and
               (3)  technical documentation of the change.
         (c)  A video lottery terminal approved by the commission for
  placement at a video lottery terminal establishment must conform to
  the specifications of the video lottery terminal prototype tested
  or approved by the commission.
         Sec. 466.540.  VIDEO LOTTERY TERMINAL REMOVAL.  (a)  If any
  video lottery terminal that has not been approved by the commission
  is distributed by a video lottery terminal provider or operated by a
  video lottery retailer or video lottery manager or if an approved
  video lottery terminal malfunctions, the commission shall require
  the terminal to be removed from use and play.
         (b)  The commission may order that an unapproved terminal be
  seized and destroyed.
         (c)  The commission may suspend or revoke the license of a
  video lottery retailer or video lottery manager or the registration
  or approval of a video lottery terminal provider for the
  distribution, possession, or operation of an unauthorized video
  lottery terminal.
         (d)  A video lottery retailer or video lottery manager may
  retain on the premises of a video lottery establishment a number of
  machines that the retailer or manager determines is necessary for
  spare parts or repair purposes or as replacements.  The retailer or
  manager must provide to the commission each month a list of the
  terminals retained under this subsection.
         Sec. 466.541.  VIDEO LOTTERY TERMINAL SPECIFICATIONS.  (a)  
  The commission shall adopt rules for approval of video lottery
  terminals, including requirements for video lottery game tickets,
  maximum and minimum payout, and maximum wagers.
         (b)  A commission-approved video lottery terminal must meet
  the following minimum specifications:
               (1)  the terminal must:
                     (A)  operate through a player's insertion of a
  coin, currency, voucher, or token into the video lottery terminal
  that causes the video lottery terminal to display credits that
  entitle the player to select one or more symbols or numbers or cause
  the video lottery terminal to randomly select symbols or numbers;
                     (B)  allow the player to win additional game play
  credits, coins, or tokens based on game rules that establish the
  random selection of winning combinations of symbols or numbers and
  the number of free play credits, coins, or tokens to be awarded for
  each winning combination; and
                     (C)  allow the player at any time to clear all game
  play credits and receive a video lottery ticket or other
  representation of credits entitling the player to receive the cash
  value of those credits;
               (2)  a surge protector must be installed on the
  electrical power supply line to each video lottery terminal, a
  battery or equivalent power backup for the electronic meters must
  be capable of maintaining the accuracy of all accounting records
  and video lottery terminal status reports for a period of 180 days
  after power is disconnected from the video lottery terminal, and
  the power backup device must be in the compartment specified in
  Subdivision (4);
               (3)  the operation of each video lottery terminal may
  not be adversely affected by any static discharge or other
  electromagnetic interference;
               (4)  the main logic boards of all electronic storage
  mediums must be located in a separate compartment in or from the
  video lottery terminal that is locked and sealed by the commission;
               (5)  the instructions for play of each game must be
  displayed on the video lottery terminal face or screen, including a
  display detailing the credits awarded for the occurrence of each
  possible winning combination of numbers or symbols;
               (6)  communication equipment and devices must be
  installed to enable each video lottery terminal to communicate with
  the video lottery central system through the use of a
  communications protocol provided by the commission to each
  registered video lottery terminal provider, which must include
  information retrieval and programs to activate and disable the
  terminal; and
               (7)  a video lottery terminal may be operated only if
  connected to the video lottery central system, and play on the
  terminal may not be conducted unless the terminal is connected to
  the video lottery central system.
         Sec. 466.542.  VIDEO LOTTERY TERMINALS: HOURS OF OPERATION;
  COMMUNICATION; LOCATION.  (a)  Except as otherwise provided by the
  commission, the hours of operation for video lottery terminals are
  subject to restrictions only as provided by commission rules.
         (b)  The commission by rule may prescribe restrictions on the
  hours of video lottery terminal operations for purposes of
  accounting for and collecting revenue generated by video lottery
  terminal operations and performing other operational services on
  the video lottery system.
         (c)  Communication between the video lottery central system
  and each video lottery terminal must be continuous and on a
  real-time basis as prescribed by the commission.
         (d)  Except as provided by commission rule, placement or
  movement of video lottery terminals in a video lottery terminal
  establishment must be consistent with a video lottery terminal
  establishment floor plan filed with the commission.
         Sec. 466.543.  VIDEO LOTTERY TERMINAL: TRANSPORT;
  DISPOSITION OF OBSOLETE TERMINAL.  (a)  The transportation and
  movement of video lottery terminals into or within this state is
  prohibited, except as permitted by this subchapter and approved by
  the commission.
         (b)  An obsolete video lottery terminal or a video lottery
  terminal that is no longer in operation must be promptly reported to
  the commission.
  [Section 466.544 reserved for expansion]
         Sec. 466.545.  TRAVEL AND INVESTIGATION COSTS.  The
  commission shall pay the travel and investigative expenses incurred
  under this subchapter from money appropriated to the commission.
         Sec. 466.546.  CONSENT TO COMMISSION DETERMINATION.  (a)  An
  application for a license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval under this
  subchapter constitutes a request to the commission for a decision
  on the applicant's general suitability, character, integrity, and
  ability to participate or engage in or be associated with the
  lottery in the manner or position sought.
         (b)  By filing an application with the commission, the
  applicant specifically consents to the commission's decision at the
  commission's election when the application, after filing, becomes
  moot for any reason other than death.
         Sec. 466.547.  ABSOLUTE AUTHORITY OF COMMISSION.  To protect
  the integrity of the lottery or the public health, welfare, or
  safety, or to prevent financial loss to this state, the commission
  has full and absolute power and authority, subject to Chapter 2001,
  to:
               (1)  deny any application or limit, condition,
  restrict, revoke, or suspend any license, registration, finding of
  suitability, or other affirmative regulatory approval; and
               (2)  fine any person licensed, registered, found
  suitable, or approved for cause.
         Sec. 466.548.  INSTITUTIONAL INVESTOR.  The commission shall
  adopt rules regarding a finding of suitability for an institutional
  investor in a person licensed under this subchapter.
  [Sections 466.549-466.550 reserved for expansion]
         Sec. 466.551.  EFFECT OF DENIAL OF LICENSE, REGISTRATION,
  FINDING OF SUITABILITY, OR APPROVAL.  (a)  A person whose
  application for a license, registration, finding of suitability, or
  other affirmative regulatory approval has been denied may not have
  any interest in or association with a video lottery retailer or
  video lottery manager or any other business conducted in connection
  with video lottery without prior approval of the commission.
         (b)  Any contract between a person holding a license,
  certificate of registration, finding of suitability, or other
  affirmative regulatory approval and a person denied a license,
  certificate of registration, finding of suitability, or other
  affirmative regulatory approval must be terminated immediately on
  receipt of notice from the commission. If the person denied a
  license, certificate of registration, finding of suitability, or
  other affirmative regulatory approval has previously been granted a
  temporary license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval, the
  temporary license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval expires
  immediately on denial of the permanent license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval.
         (c)  Except as otherwise authorized by the commission, a
  person denied a license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval may not
  reapply for any license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval before the
  second anniversary of the date of the denial.
  [Section 466.552 reserved for expansion]
         Sec. 466.553.  PRACTICE BY VIDEO LOTTERY RETAILER OR VIDEO
  LOTTERY MANAGER.  A video lottery retailer or video lottery manager
  must:
               (1)  be aware of patron conditions and prohibit play by
  visibly intoxicated patrons;
               (2)  comply with state alcoholic beverage control laws;
               (3)  at all times maintain sufficient change and cash
  in denominations accepted by video lottery terminals;
               (4)  promptly report all video lottery terminal
  malfunctions and downtime;
               (5)  install, post, and display prominently any
  material required by the commission;
               (6)  prohibit illegal gambling and any related
  paraphernalia;
               (7)  except as otherwise provided by this subchapter,
  at all times prohibit money lending or other extensions of credit at
  the video lottery terminal establishment;
               (8)  supervise employees and activities to ensure
  compliance with all commission rules and this subchapter;
               (9)  maintain continuous camera coverage of all aspects
  of video lottery game operations, including video lottery
  terminals; and
               (10)  maintain an entry log for each video lottery
  terminal on the premises of the video lottery terminal
  establishment and maintain and submit complete records on receipt
  of each video lottery terminal on the premises as determined by the
  commission.
         Sec. 466.554.  RACETRACK REQUIREMENTS.  (a)  A video lottery
  retailer at all times must hold a valid racetrack or pari-mutuel
  wagering license issued by the Texas Racing Commission.
         (b)  A video lottery retailer that meets the qualifications
  of Section 466.521(a)(1) is considered to meet the requirements of
  this section.
         Sec. 466.555.  LIVE RACING REQUIREMENT. (a) "Class 1
  racetrack," "class 2 racetrack," and "class 3 racetrack" have the
  meanings assigned by Section 6.02, Texas Racing Act (Article 179e,
  Vernon's Texas Civil Statutes).
         (b)  Except as provided by Subsection (d), a class 1
  racetrack that operates a video lottery terminal establishment:
               (1)  shall annually offer for pari-mutuel wagering on
  quarter horse and Thoroughbred races at that racetrack not fewer
  than the greater of:
                     (A)  the number of live racing days conducted by
  the racetrack for each breed in 2002; or
                     (B)  50 live race days or 500 live races for each
  breed; and
               (2)  may not conduct live racing on any day on which
  another horse racetrack located within a 100-mile radius of the
  racetrack conducts live racing for the same breed.
         (c)  Except as provided by Subsection (d), a class 2
  racetrack that operates a video lottery terminal establishment:
               (1)  shall annually offer for pari-mutuel wagering on
  quarter horse and Thoroughbred races at that racetrack not fewer
  than the greater of:
                     (A)  the number of live racing days conducted by
  the racetrack for each breed in 2002; or
                     (B)  25 live race days or 250 live races for each
  breed; and
               (2)  may not conduct live racing on any day on which
  another horse racetrack within a 100-mile radius of the racetrack
  conducts live racing for the same breed.
         (d)  A class 1 or class 2 racetrack may conduct fewer live
  racing days or live races than required by Subsection (b) or (c) for
  any breed if the racetrack, the applicable officially recognized
  breed registry, and the officially recognized horsemen's
  organization for that breed enter into a written agreement to
  conduct fewer racing days or live races.
         (e)  A class 2 or class 3 racetrack that operates a video
  lottery terminal establishment and that is located within a
  100-mile radius of a class 1 racetrack may not conduct a horse race
  in a manner that, for any breed, would result in:
               (1)  an average daily purse amount that exceeds the
  average daily purse amount at the immediately preceding race
  meeting for that breed at the class 1 racetrack unless otherwise
  agreed to by both racetracks; or
               (2)  total purse amounts for that race meeting that
  exceed the total purse amounts for the immediately preceding race
  meeting for that breed at the class 1 racetrack unless otherwise
  agreed to by both racetracks.
         (f)  A class 2 or class 3 racetrack subject to Subsection (e)
  shall transfer any purse money in the Texas equine development fund
  for that racetrack in excess of the maximum purse amounts
  authorized under Subsection (e) to the horsemen's organization for
  the same breed at the class 1 racetrack within the specified radius
  for use by the organization, unless the class 1 racetrack and the
  horsemen's organization agree to allow some or all of the excess
  purse money to be transferred and used for the same breed by the
  horsemen's organization at another racetrack or racetracks.
         (g)  A greyhound racetrack that operates a video lottery
  terminal establishment shall offer not fewer than 420 live
  greyhound racing performances in each calendar year, unless
  otherwise agreed to in writing by the racetrack and the officially
  recognized greyhound breed registry. For purposes of this
  subsection, "greyhound racing performance" means the consecutive
  running of not fewer than 12 greyhound races.
         (h)  The Texas Racing Commission shall adopt rules to
  implement this section, including rules governing waiver of the
  requirements of this section due to fire, weather, absence of
  existing facilities required to conduct pari-mutuel wagering on
  live racing, or other events beyond the reasonable control of the
  pari-mutuel license holder.  A waiver granted under this subsection
  for construction of a new racetrack facility:
               (1)  expires on the second anniversary of the date of
  issuance; and
               (2)  must include a provision that addresses the
  transfer of a portion of the revenue generated from the operation of
  the video lottery terminals as provided under this chapter to the
  applicable Texas equine development fund or Texas canine
  development fund during the term of the waiver.
         (i)  If a racetrack is in violation of this section and is
  denied a waiver of the requirements of this section by the Texas
  Racing Commission, the racing commission shall:
               (1)  require that, beginning on the date the request
  for the waiver is denied, the racetrack's share of net terminal
  income be placed in an escrow account and remain in that account
  until the racing commission approves its release; and
               (2)  provide for the timely release of money from the
  escrow account for required payments of debt instruments, license
  fees, and other ordinary operating expenses.
         (j)  The Texas Racing Commission may not approve the release
  of the remainder of the money in the escrow account after the
  payments authorized under Subsection (i)(2) until the racing
  commission certifies that, in the racing commission's judgment, the
  racetrack has taken the actions required by the racing commission
  to correct violations of this section. If the racing commission
  makes the certification before live racing resumes at the
  racetrack, it shall grant a waiver of the requirements of this
  section. The actions required by the racing commission to correct
  violations of this section must be a condition of the waiver and
  must include a period for completion of the specified actions. If
  the racetrack fails to adhere to the conditions of the waiver, the
  waiver is revoked.
         (k)  A racetrack is ineligible to hold a video lottery
  terminal establishment license under this subchapter if:
               (1)  the Texas Racing Commission denies a waiver of the
  requirements of this section;
               (2)  the denial is not reversed after all appeals of
  that decision by that racetrack are final; and
               (3)  the racetrack fails to take the actions required
  by the racing commission to correct violations of this section.
         Sec. 466.556.  PRIZE RULES.  The commission shall adopt
  rules governing:
               (1)  the range of amounts a player may be charged to
  play each video lottery game; and
               (2)  the range of prizes and credits that may be awarded
  to the player of a video lottery game.
         Sec. 466.557.  VIDEO LOTTERY CENTRAL SYSTEM:  COMMUNICATION
  TECHNOLOGY.  The video lottery central system provider shall pay
  for the installation and operation of commission-approved
  communication technology to provide communication between each
  video lottery terminal and the video lottery central system.
         Sec. 466.558.  RESPONSIBILITY FOR VIDEO LOTTERY GAME
  OPERATIONS.  (a)  A video lottery retailer or a video lottery
  manager, if applicable, is responsible for the management of video
  lottery game operations, including:
               (1)  the validation and payment of prizes,
  determination of game themes, prizes, bonuses, progressives,
  number and placement of video lottery terminals, and individual pay
  out percentage settings; and
               (2)  the management of cashiers, food and beverage
  workers, floor workers, security personnel, the security system,
  building completion, janitorial services, landscaping design, and
  maintenance.
         (b)  Nothing in Subsection (a) limits the authority of the
  commission, the Department of Public Safety, or another law
  enforcement agency to administer and enforce this chapter as
  related to video lottery.
         (c)  In addition to other requirements under this chapter
  relating to video lottery, a video lottery retailer or a video
  lottery manager at all times shall:
               (1)  operate only video lottery terminals that are
  distributed by a registered or approved video lottery terminal
  provider and provide a secure location for the placement,
  operation, and play of the video lottery terminals;
               (2)  prevent any person from tampering with or
  interfering with the operation of a video lottery terminal;
               (3)  ensure that communication technology from the
  video lottery central system to the video lottery terminals is
  connected at all times and prevent any person from tampering or
  interfering with the operation of the connection;
               (4)  ensure that video lottery terminals are in the
  sight and control of designated employees of the video lottery
  retailer or video lottery manager and in the sight of video cameras
  as required under this subchapter;
               (5)  ensure that video lottery terminals are placed and
  remain placed in the locations in the video lottery terminal
  establishment that are consistent with the retailer's or manager's
  floor plan;
               (6)  monitor video lottery terminals to prevent access
  to or play by persons who are under 21 years of age or who are
  visibly intoxicated;
               (7)  pay all credits won by a player on presentment of a
  valid winning video lottery game ticket;
               (8)  install, post, and display prominently at the
  licensed location redemption information and other informational
  or promotional materials as required by the commission;
               (9)  maintain general liability insurance coverage for
  the video lottery terminal establishment and all video lottery
  terminals in the amounts required by the commission;
               (10)  assume liability for money lost or stolen from
  any video lottery terminal; and
               (11)  annually submit an audited financial statement to
  the commission in accordance with generally accepted accounting
  principles.
  [Section 466.559 reserved for expansion]
         Sec. 466.560.  TECHNICAL STANDARDS FOR VIDEO LOTTERY
  EQUIPMENT.  The commission by rule shall establish minimum
  technical standards for video lottery equipment that may be
  operated in this state.
         Sec. 466.561.  INCIDENT REPORTS.  (a)  A video lottery
  retailer or video lottery manager shall record all unusual
  occurrences related to gaming activity in a video lottery terminal
  establishment operated by the retailer or manager.
         (b)  A video lottery retailer or video lottery manager shall
  assign each material incident, without regard to materiality, a
  sequential number and, at a minimum, provide the following
  information in a permanent record prepared in accordance with
  commission rules to ensure the integrity of the record:
               (1)  the number assigned to the incident;
               (2)  the date and time of the incident;
               (3)  the nature of the incident;
               (4)  each person involved in the incident; and
               (5)  the name of the employee or other agent of the
  video lottery retailer or video lottery manager who investigated
  the incident.
         Sec. 466.562.  EXCLUSION OF PERSONS.  (a)  The commission
  shall compile a list of persons that a video lottery retailer or
  video lottery manager must bar from a video lottery terminal
  establishment based on a person's criminal history or association
  with criminal offenders or because the person poses a threat to the
  integrity of the lottery.
         (b)  A video lottery retailer or video lottery manager shall
  employ the retailer's or manager's best efforts to exclude such
  persons from entry into the establishment.
         (c)  A video lottery retailer or video lottery manager may
  exclude a person for any reason not related to the person's race,
  sex, national origin, physical disability, or religion.
         (d)  A person who believes the person may be playing video
  lottery games on a compulsive basis may request that the person's
  name be placed on the list compiled by the commission under
  Subsection (a).
         (e)  All video lottery game employees shall receive training
  in identifying players with a compulsive playing problem. Signs
  and other materials shall be readily available to direct compulsive
  players to agencies that offer appropriate counseling.
         Sec. 466.563.  REPORT ON LITIGATION.  (a)  A video lottery
  retailer or video lottery manager shall report to the commission
  any litigation relating to the retailer's or manager's video
  lottery terminal establishment, including a criminal proceeding, a
  proceeding involving an issue related to racing activities that
  impact video lottery operations, or a matter related to character
  or reputation relevant to a person's suitability under this
  subchapter.
         (b)  The report required under Subsection (a) must be filed
  not later than the fifth day after the date the video lottery
  retailer or video lottery manager acquired knowledge of the
  litigation.
         Sec. 466.564.  COMMISSION APPROVAL REQUIRED FOR PROCEDURES
  AND ACCOUNTING CONTROLS.  (a)  The commission's approval is
  required for all internal procedures and accounting controls of a
  video lottery retailer or video lottery manager.
         (b)  The commission by rule shall establish general
  accounting and auditing requirements and internal control
  standards for video lottery retailers and video lottery managers.
  [Section 466.565 reserved for expansion]
         Sec. 466.566.  VIDEO LOTTERY TERMINAL EVENTS.  A video
  lottery retailer or video lottery manager shall keep a record of
  video lottery terminal events. The commission by rule shall
  determine what constitutes a video lottery terminal event for
  purposes of this section.
         Sec. 466.567.  EMPLOYEE REPORTING.  (a)  On or before the
  15th day of each month, a video lottery retailer or video lottery
  manager shall submit to the commission an employee report for the
  video lottery terminal establishment operated by the retailer or
  manager. For each employee of the retailer or manager, the report
  must provide the employee's name, job title, date of birth, and
  social security number.
         (b)  The employee report is confidential and may not be
  disclosed except under commission order or in accordance with
  Section 466.022(d).
         (c)  The commission may conduct criminal history
  investigations for employees of video lottery retailers and video
  lottery managers.
         (d)  The commission may prohibit an employee from performing
  any act relating to video lottery terminals if the commission finds
  that an employee has:
               (1)  committed, attempted, or conspired to commit any
  act prohibited by this chapter;
               (2)  concealed or refused to disclose any material fact
  in any commission investigation;
               (3)  committed, attempted, or conspired to commit
  larceny or embezzlement;
               (4)  been convicted in any jurisdiction of an offense
  involving or relating to gambling;
               (5)  accepted employment in a position for which
  commission approval is required after commission approval was
  denied for a reason involving personal unsuitability or after
  failing to apply for a license or approval on commission request;
               (6)  been prohibited under color of governmental
  authority from being present on the premises of any gaming
  establishment or any establishment where pari-mutuel wagering is
  conducted for any reason relating to improper gambling activity or
  for any illegal act;
               (7)  wilfully defied any legislative investigative
  committee or other officially constituted body acting on behalf of
  the United States or any state, county, or municipality that sought
  to investigate alleged or potential crimes relating to gaming,
  corruption of public officials, or any organized criminal
  activities; or
               (8)  been convicted of any felony or any crime
  involving moral turpitude.
         (e)  The commission may prohibit an employee from performing
  any act relating to video lottery terminals based on a revocation or
  suspension of any gaming or wagering license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval or for any other reason the commission finds
  appropriate, including a refusal by a regulatory authority to issue
  a license, certificate of registration, finding of suitability, or
  other affirmative regulatory approval for the employee to engage in
  or be involved with the lottery or with regulated gaming or
  pari-mutuel wagering in any jurisdiction.
         (f)  In this section, "employee" includes any person
  connected directly with or compensated by an applicant or the
  holder of a license, certificate of registration, finding of
  suitability, or other affirmative regulatory approval under this
  subchapter as an agent, personal representative, consultant, or
  independent contractor for activities directly related to video
  lottery operations in this state.
         Sec. 466.568.  REPORT OF VIOLATIONS.  A person who holds a
  license, certificate of registration, finding of suitability, or
  other affirmative regulatory approval under this subchapter shall
  immediately report a violation or suspected violation of this
  chapter or a rule adopted under this chapter by any holder of a
  license, certificate of registration, finding of suitability, or
  other affirmative regulatory approval, by an employee of the
  holder, or by any person on the premises of a video lottery terminal
  establishment, whether or not associated with the holder.
         Sec. 466.569. SECURITY.  (a)  In addition to the security
  provisions applicable under Section 466.020, a video lottery
  retailer or video lottery manager shall comply with the following
  security procedures:
               (1)  all video lottery terminals must be continuously
  monitored through the use of a closed-circuit television system
  that records activity for a continuous 24-hour period and all video
  tapes or other media used to store video images shall be retained
  for at least 30 days and made available to the commission on
  request;
               (2)  access to video lottery terminal areas shall be
  restricted to persons who are at least 21 years of age;
               (3)  the video lottery retailer or video lottery
  manager must provide to the commission a security plan for the
  retailer or manager's video lottery operations that includes a
  floor plan of the area where video lottery terminals are to be
  operated showing video lottery terminal locations and security
  camera mount locations; and
               (4)  each license holder shall employ at least the
  minimum number of private security personnel the commission
  determines is necessary to provide for safe and approved operation
  of the video lottery terminal establishment and the safety and
  well-being of the players.
         (b)  Private security personnel must be present during all
  hours of operation at each video lottery terminal establishment.
         (c)  An agent or employee of the commission or the Department
  of Public Safety or other law enforcement personnel may be present
  at a video lottery terminal establishment at any time.
         (d)  The commission may adopt rules to impose additional
  surveillance and security requirements related to video lottery
  terminal establishments and the operation of video lottery
  terminals.
         Sec. 466.570.  VIDEO LOTTERY TERMINAL ESTABLISHMENT:
  COMMISSION RIGHT TO ENTER.  The commission, the commission's
  representative, the Texas Racing Commission, or a representative of
  the Texas Racing Commission, after displaying appropriate
  identification and credentials, has the free and unrestricted right
  to enter the premises of a video lottery terminal establishment and
  to enter any other locations involved in operation or support of
  video lottery at all times to examine the systems and to inspect and
  copy the records of a video lottery retailer or video lottery
  manager pertaining to the operation of video lottery.
  [Sections 466.571-466.586 reserved for expansion]
         Sec. 466.587.  INDEMNIFICATION REQUIREMENTS.  The holder of
  a license, certificate of registration, finding of suitability, or
  other affirmative regulatory approval shall indemnify and hold
  harmless this state, the commission, and all officers and employees
  of this state and the commission from any and all claims which may
  be asserted against the holder, the commission, this state, and the
  members, officers, employees, and authorized agents of this state
  or the commission arising from the holder's participation in the
  video lottery system authorized under this subchapter.
         Sec. 466.588.  LIABILITY FOR CREDIT AWARDED OR DENIED;
  PLAYER DISPUTE.  (a)  This state and the commission are not liable
  for any video lottery terminal malfunction or error by a video
  lottery retailer, video lottery manager, or video lottery terminal
  provider that causes credit to be wrongfully awarded or denied to
  players.
         (b)  Any dispute arising between a player and a video lottery
  retailer or video lottery manager shall be resolved by the
  commission as follows:
               (1)  if the fair market value of the prize is less than
  $1,000, the dispute shall be resolved in accordance with the
  commission-approved written policies of the video lottery retailer
  or video lottery manager and without any relief available from the
  commission or this state; or
               (2)  if the fair market value of the prize is $1,000 or
  more, the dispute shall be resolved by the commission in the
  commission's sole discretion in accordance with commission rules.
         (c)  A court of this state does not have jurisdiction to
  review the decision of the commission resolving a dispute between a
  player and a video lottery retailer, video lottery manager, or
  video lottery terminal provider.
         Sec. 466.589.  STATE VIDEO LOTTERY ACCOUNT.  (a)  The
  commission shall deposit funds received under this subchapter to
  the state video lottery account.  The state video lottery account is
  a special account in the general revenue fund.  The account consists
  of all revenue received by this state from the operation of video
  lottery terminals.
         (a-1)  Notwithstanding Section 466.355(b), the commission
  may expend an amount not to exceed $5 million from the state lottery
  account to establish the video lottery system in accordance with
  this chapter and from revenue deposited in the state video lottery
  account may reimburse the state lottery account for the total
  amount of funds expended from the state lottery account to
  establish the video lottery system.  This subsection expires
  January 1, 2015.
         (b)  An amount not to exceed one percent of the net terminal
  income received by this state under Section 466.590 shall be
  allocated to the commission to defray expenses incurred in
  administering this chapter related to video lottery, including
  expenses incurred to operate the video lottery central system. All
  money allocated to the commission under this subsection may be
  retained by the commission to defray expenses of administering this
  chapter related to video lottery and shall be deposited in the state
  video lottery account.
         Sec. 466.590.  ALLOCATION OF NET TERMINAL INCOME; TRANSFER
  OF MONEY.  (a)  Net terminal income derived from the operation of
  video lottery games in this state is allocated as follows:
               (1)  a portion of the net terminal income generated in
  each calendar year shall be remitted to this state by the video
  lottery retailer or video lottery manager in an amount equal to 30
  percent of the net terminal income for that year; and
               (2)  the remainder shall be retained by the video
  lottery retailer or video lottery manager.
         (b)  Ten million dollars of the net terminal income received
  by this state under Subsection (a) shall annually in equal monthly
  installments be transferred to the Texas Racing Commission to be
  expended solely for the treatment of compulsive gamblers and the
  promotion of responsible gaming.
         (c)  Ten million dollars of the net terminal income received
  by this state under Subsection (a) shall annually in equal monthly
  installments be transferred to the criminal justice planning fund
  for use by the criminal justice division of the governor's office to
  be used to prosecute offenses under Chapter 47, Penal Code.
         (d)  The commission shall require a video lottery retailer or
  video lottery manager to establish a separate electronic funds
  transfer account for depositing money from video lottery terminal
  operations, making payments to the commission or its designee, and
  receiving payments from the commission or its designee.
         (e)  A video lottery retailer or video lottery manager may
  not make payments to the commission in cash.  As authorized by the
  commission, a video lottery retailer or video lottery manager may
  make payments to the commission by cashier's check.
         (f)  The commission at least weekly shall transfer this
  state's share of net terminal income of a video lottery retailer or
  video lottery manager to the commission through the electronic
  transfer of the money.
         (g)  The commission by rule shall establish the procedures
  for:
               (1)  depositing money from video lottery terminal
  operations into electronic funds transfer accounts; and
               (2)  handling money from video lottery terminal
  operations.
         (h)  Unless otherwise directed by the commission, a video
  lottery retailer or a video lottery manager shall maintain in its
  account this state's share of the net terminal income from the
  operation of video lottery terminals, to be electronically
  transferred by the commission on dates established by the
  commission.  On a license holder's failure to maintain this
  balance, the commission may disable all of a license holder's video
  lottery terminals until full payment of all amounts due is made.
  Interest shall accrue on any unpaid balance at a rate consistent
  with the amount charged under Section 111.060, Tax Code. The
  interest shall begin to accrue on the date payment is due to the
  commission.
         (i)  In the commission's sole discretion, rather than
  disable a license holder's video lottery terminals under Subsection
  (h), the commission may elect to impose a fine on a license holder
  in an amount determined by the commission not to exceed $250,000 for
  each violation. If the license holder fails to remedy the
  violation, including payment of any amounts assessed by or due to
  this state, on or before the 30th day after the date the license
  holder is notified of the violation, the commission may disable the
  license holder's video lottery terminals or use any other means for
  collection as provided by the penalty chart established by the
  commission.
         (j)  A video lottery retailer or video lottery manager is
  solely responsible for resolving any income discrepancies between
  actual money collected and the net terminal income reported by the
  video lottery central system. Unless an accounting discrepancy is
  resolved in favor of the video lottery retailer or video lottery
  manager, the commission may not make any credit adjustments. Any
  accounting discrepancies which cannot otherwise be resolved shall
  be resolved in favor of the commission.
         (k)  A video lottery retailer and video lottery manager shall
  remit payment as directed by the commission if the electronic
  transfer of money is not operational or the commission notifies the
  license holder that other remittance is required. The license
  holder shall report this state's share of net terminal income, and
  remit the amount generated from the terminals during the reporting
  period.
         Sec. 466.591.  COMMISSION EXAMINATION OF FINANCIAL RECORDS.  
  The commission may examine all accounts, bank accounts, financial
  statements, and records in the possession or control of a person
  licensed under this subchapter or in which the license holder has an
  interest.  The license holder must authorize and direct all third
  parties in possession or in control of the accounts or records to
  allow examination of any of those accounts or records by the
  commission.
         Sec. 466.592.  FINANCIAL INFORMATION REQUIRED.  (a)  A video
  lottery retailer or video lottery manager shall furnish to the
  commission all information and bank authorizations required to
  facilitate the timely transfer of money to the commission.
         (b)  A video lottery retailer or video lottery manager must
  provide the commission advance notice of any proposed account
  changes in information and bank authorizations to assure the
  uninterrupted electronic transfer of money.
         (c)  The commission is not responsible for any interruption
  or delays in the transfer of money. The video lottery retailer or
  video lottery manager is responsible for any interruption or delay
  in the transfer of money.
         Sec. 466.593.  TRANSFERS OF VIDEO LOTTERY PROCEEDS FOR
  CERTAIN PURPOSES; RACING FACILITIES CAPITAL IMPROVEMENT ACCOUNT.
  (a)  A video lottery retailer or video lottery manager that operates
  a video lottery terminal establishment at a horse racetrack at
  least weekly shall transfer:
               (1)  11 percent of the net terminal income to the Texas
  equine development fund established at that racetrack; and
               (2)  one percent of the net terminal income to the
  performance horse development fund.
         (b)  A video lottery retailer or video lottery manager that
  operates a video lottery terminal establishment at a greyhound
  racetrack shall transfer 12 percent of the net terminal income to
  the Texas canine development fund established at that racetrack.
         (c)  A video lottery retailer or video lottery manager that
  operates a video lottery terminal establishment at a horse
  racetrack shall provide at least $1 million, or a different amount
  required by the Texas Racing Commission, in accident insurance
  coverage for jockeys participating in a race meeting at its
  racetrack. The Texas Racing Commission:
               (1)  may review and approve the adequacy of the
  coverage;
               (2)  shall annually adjust for inflation the minimum
  coverage amount; and
               (3)  shall annually publish in the Texas Register the
  revised minimum coverage amount.
         (d)  A video lottery retailer or video lottery manager shall
  provide all necessary capital investments and required
  improvements for the video lottery terminal establishment.
         (e)  A video lottery retailer or video lottery manager shall
  make at least weekly payments to the racing facilities capital
  improvement account in an amount equal to one-half of one percent of
  the net terminal income unless a racing facilities agreement
  providing for a different amount is filed with the Texas Racing
  Commission.
         (f)  The racing facilities capital improvement account is an
  escrow account maintained by the Texas Racing Commission. A
  transfer of money from the account requires:
               (1)  for a horse racetrack, the signatures of:
                     (A)  a designated official of the horse racetrack;
  and
                     (B)  a designated representative appointed by a
  majority of the quarter horse state breed registry, the
  Thoroughbred state horse breed registry, and the horsemen's
  organization; or
               (2)  for a greyhound racetrack, the signatures of:
                     (A)  a designated official of the greyhound
  racetrack; and
                     (B)  a designated representative of the Texas
  Greyhound Association.
         (g)  The Texas Racing Commission shall adopt rules to
  administer this section. The rules must require the electronic
  transfer of funds to the accounts described in this section.
         (h)  A matter considered by the Texas Racing Commission under
  this section is a contested case under Chapter 2001 and requires a
  public hearing.
         Sec. 466.594.  PAYMENTS FROM NET TERMINAL INCOME WHEN LIVE
  RACING DOES NOT OCCUR. (a) A video lottery retailer or video
  lottery manager shall promptly and fully make each payment or
  transfer from the net terminal income required under this chapter
  on behalf of the video lottery terminal establishment at the
  racetrack even if live racing at that racetrack is shortened,
  canceled, or delayed for any reason.
         (b)  If a horse racetrack fails to request the minimum number
  of required live race dates or fails to offer the minimum number of
  required live races despite issuance of live race dates, does not
  receive a waiver of that violation from the Texas Racing Commission
  as provided under this subchapter, and does not have an agreement
  with the affected state horse breed registries and horsemen's
  organization, the applicable state horse breed registries and the
  horsemen's organization may, in their sole discretion, transfer all
  money to which they are entitled under this chapter from that
  racetrack to the respective accounts under their control at another
  racetrack or racetracks.
         (c)  If a greyhound racetrack fails to request the minimum
  number of required live race dates or fails to offer the minimum
  number of required live races despite issuance of live race dates,
  does not receive a waiver of that violation from the Texas Racing
  Commission as provided under this subchapter, and does not have an
  agreement with the affected officially recognized greyhound breed
  registry, the Texas Greyhound Association may, in its sole
  discretion, transfer all money to which the association is entitled
  under this chapter from that racetrack to the account under its
  control at another racetrack or racetracks.
         Sec. 466.595.  EQUINE RESEARCH FUNDING; USES OF TEXAS CANINE
  DEVELOPMENT FUND OR TEXAS EQUINE DEVELOPMENT FUND AT EACH
  RACETRACK. (a) The amount equal to 0.025 percent of the net
  terminal income generated at a video lottery terminal establishment
  at a horse racetrack shall be transferred from the Texas equine
  development fund for that racetrack to the equine research account
  of the Texas Agricultural Experiment Station for use in equine
  research, including facilities development under Subchapter F,
  Chapter 88, Education Code. The money transferred under this
  subsection shall supplement, and may not replace, funding provided
  under the Texas Racing Act (Article 179e, Vernon's Texas Civil
  Statutes).
         (b)  Each video lottery retailer or video lottery manager
  that operates a video lottery terminal establishment at a racetrack
  shall, at least weekly, transfer to the racing facilities capital
  improvement account from the racetrack's Texas equine development
  fund or Texas canine development fund, as applicable, an amount
  equal to one-half of one percent of the net terminal income unless a
  racing facilities agreement providing for a different amount is
  filed with the Texas Racing Commission.
         (c)  Unless an agreement between the state horse breed
  registries and the horsemen's organization provides otherwise, and
  after any other allocations required by this subchapter, the
  remainder of the money deposited in the Texas equine development
  fund at a horse racetrack must:
               (1)  be used for purses and the Texas-bred incentive
  programs and may be used for other programs considered beneficial
  to the equine industry, including:
                     (A)  equine retirement, adoption, and retraining
  programs;
                     (B)  programs to test for banned
  performance-enhancing equine drugs, performance-enhancing drug
  testing research, and equipment and facilities of laboratories
  providing those services in this state; and
                     (C)  other programs to improve the working
  environment in stable areas of racetracks; and
               (2)  be allocated as follows:
                     (A)  the amount equal to 4.43 percent of the net
  terminal income to the horsemen's organization to supplement
  Thoroughbred racing purses;
                     (B)  the amount equal to 2.385 percent of the net
  terminal income to the horsemen's organization to supplement
  quarter horse racing purses;
                     (C)  the amount equal to 2.38 percent of the net
  terminal income to the Thoroughbred state horse breed registry; and
                     (D)  the amount equal to 1.28 percent of the net
  terminal income to the quarter horse state horse breed registry.
         (d)  From the money allocated under Subsection (c)(2)(A),
  pursuant to an agreement between the Texas Arabian Breeders
  Association and the horsemen's organization, the horsemen's
  organization shall allocate a portion of the money for purses for
  the Arabian horse racing industry. The agreement must provide that
  not less than the amount equal to 0.199 percent of the net terminal
  income be allocated for Arabian horse racing purses.  If an
  agreement is not made, the horsemen's organization shall transfer
  to the Texas Arabian horse racing industry the amount equal to 0.199
  percent of the net terminal income for Arabian horse racing purses.
         (e)  From the money allocated under Subsection (c)(2)(B),
  pursuant to an agreement between the Texas Paint Horse Breeders' 
  Association and the horsemen's organization, the horsemen's
  organization shall allocate a portion of the money for purses for
  the paint horse racing industry.  If the agreement is not made, the
  horsemen's organization shall transfer to the paint horse racing
  industry an amount equal to 0.072 percent of the net terminal income
  for paint horse racing purses.
         (f)  From the money allocated under Subsection (c)(2)(C),
  pursuant to an agreement between the Texas Arabian Breeders
  Association and the Thoroughbred state horse breed registry, the
  registry shall allocate a portion of the money for the Arabian horse
  racing industry state-breed programs. The agreement must provide
  that not less than the amount equal to 0.107 percent of the net
  terminal income be allocated for Arabian state-breed programs. If
  an agreement is not made, the Thoroughbred state horse breed
  registry shall transfer to the Texas Arabian horse racing industry
  for state-breed programs the amount equal to 0.107 percent of the
  net terminal income.
         (g)  From the money allocated under Subsection (c)(2)(D),
  pursuant to an agreement between the Texas Paint Horse Breeders' 
  Association and the quarter horse state horse breed registry, the
  registry shall allocate a portion of the money for state-breed
  programs for the paint horse racing industry.  If an agreement is
  not made, the registry shall transfer to the paint horse racing
  industry an amount equal to 0.038 percent of the net terminal income
  for paint horse state-breed programs.
         (h)  Following the other transfers and allocations required
  by this subchapter, the remainder of the money deposited in the
  Texas canine development fund at a greyhound racetrack is allocated
  as follows:
               (1)  the amount equal to 4.75 percent of the net
  terminal income to supplement greyhound racing purses;
               (2)  the amount equal to 4.75 percent of the net
  terminal income to supplement accredited Texas-bred greyhound
  purses; and
               (3)  the amount equal to two percent of the net terminal
  income to the Texas Greyhound Association as the state greyhound
  breed registry.
         (i)  The Texas Racing Commission may adopt rules to
  administer this section and shall require the electronic transfer
  of funds to the accounts described in this section.
         Sec. 466.5955.  RACING FACILITIES AGREEMENT; LIMITATION ON
  USES OF RACING FACILITIES CAPITAL IMPROVEMENT ACCOUNT.  (a)  For
  purposes of Sections 466.593 and 466.595, a racing facilities
  agreement for a horse racetrack is valid only on approval of the
  applicable racetrack and a majority of the quarter horse state
  horse breed registry, the Thoroughbred state horse breed registry,
  and the horsemen's organization.
         (b)  For purposes of Sections 466.593 and 466.595, a racing
  facilities agreement for a greyhound racetrack is valid only on
  approval of the racetrack and the Texas Greyhound Association.
         (c)  A racing facilities agreement filed under Section
  466.593 or 466.595 remains in effect until it expires on its own
  terms or until it is superseded by a subsequent racing facilities
  agreement for the same racetrack.
         (d)  Unless a racing facilities agreement provides
  otherwise, the money in the racing facilities capital improvement
  account may be spent only for the maintenance and improvement of
  pari-mutuel racing facilities.
         Sec. 466.596.  USES OF PERFORMANCE HORSE DEVELOPMENT FUND.
  (a)  In this section, "performance and recreational horses" means
  horses bred or trained for public competition and exhibition or
  recreational use in all legally permitted equine activities other
  than horse racing at racetracks.
         (b)  Money in the performance horse development fund may be
  spent only for:
               (1)  the development of the horse agricultural industry
  in this state through efforts intended to attract, retain, promote,
  and encourage the breeding, raising, training, and exhibition of
  performance and recreational horses in this state; and
               (2)  events and programs conducted in this state.
         (c)  Money from the performance horse development fund is
  allocated as follows:
               (1)  40 percent to the American Quarter Horse
  Association for its sanctioned events and programs;
               (2)  20 percent to the National Cutting Horse
  Association for its sanctioned events and programs;
               (3)  20 percent to the American Paint Horse Association
  for its sanctioned events and programs; and
               (4)  20 percent to the Department of Agriculture to
  promote the equine agricultural industry in this state.
         (d)  Subject to Subsection (e), money transferred to an
  association or agency from the performance horse development fund
  may be used for:
               (1)  purse supplements or additional money for
  performance and recreational horse events conducted in this state;
               (2)  the establishment of an accredited Texas Bred
  Program for breeding of performance and recreational horses;
               (3)  the marketing and promotion of performance and
  recreational horse activities and events in this state; and
               (4)  scholarship programs.
         (e)  Money may be transferred under Subsection (c)(4) only to
  organizations of the equine industry in this state that are not
  receiving money for events and programs under Subsection (c)(1),
  (2), or (3).
         (f)  Except as otherwise provided by law, all money paid to
  the Department of Agriculture is subject to Subchapter F, Chapter
  404.
         Sec. 466.597.  LIABILITY OF VIDEO LOTTERY RETAILER AND VIDEO
  LOTTERY MANAGER.  (a)  A video lottery retailer, video lottery
  manager, or both, are jointly and severally liable to the
  commission for the state's share of net terminal income.
         (b)  Net terminal income received by the video lottery
  retailer or video lottery manager is held in trust for the benefit
  of this state before delivery of the state's share to the commission
  or electronic transfer to the state treasury, and the video lottery
  retailer or video lottery manager, or both, are jointly and
  severally liable to the commission for the full amount of the money
  held in trust.
         (c)  If the video lottery retailer or video lottery manager
  is not an individual, each officer, director, or owner of the video
  lottery retailer or video lottery manager is personally liable to
  the commission for the full amount of the money held in trust,
  except that shareholders of a publicly held corporation shall be
  liable in an amount not to exceed the value of their equity
  investment.
         (d)  The money derived from video lottery proceeds that is
  required under this chapter to be transferred to the Texas equine
  development fund or the performance horse development fund is held
  in trust by the video lottery retailer or video lottery manager, as
  applicable, for the benefit of the persons designated in this
  chapter to receive money from the funds.  On Wednesday of each week,
  the retailer or manager shall transfer the money accrued in the
  funds during the week ending on the preceding Saturday to the
  depository accounts maintained by the persons entitled to money
  from the funds under this chapter. If the retailer or manager fails
  to transfer the money as required under this subsection, a person
  entitled to money from the funds under this chapter may file a civil
  action against the retailer or manager for relief, including
  damages and specific performance.
         Sec. 466.598.  PRIZE PAYMENT AND REDEMPTION.  (a)  Payment of
  prizes is the sole and exclusive responsibility of the video
  lottery retailer or video lottery manager. A prize may not be paid
  by the commission or this state except as otherwise authorized.
         (b)  Nothing in this subchapter limits the ability of a video
  lottery retailer or video lottery manager to provide promotional
  prizes in addition to prize payouts regulated by the commission.
         (c)  A video lottery ticket must be redeemed not later than
  the 180th day following the date of issuance. If a claim is not made
  for prize money on or before the 180th day after the date on which
  the video lottery ticket was issued, the prize money becomes the
  property of the video lottery terminal establishment.
         (d)  The commission shall enact rules consistent with this
  section governing the use and redemption of prizes and credits
  recorded on electronic player account records, such as players'
  club cards and smart cards.
         Sec. 466.599.  REVOCATION OF LICENSE, REGISTRATION,
  SUITABILITY FINDING, OR OTHER REGULATORY APPROVAL.  (a)  The
  commission shall revoke or suspend a license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval issued under this subchapter if the holder at
  any time fails to meet the eligibility requirements set forth in
  this subchapter.
         (b)  Failure to timely remit revenue generated by video
  lottery terminals to the commission or any tax or other fee owed to
  this state as demonstrated by report from the applicable taxing
  authority or to timely file any report or information required
  under this subchapter as a condition of any license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval issued under this subchapter may be grounds for
  suspension or revocation, or both, of a license, registration,
  suitability, or approval issued under this subchapter.
         Sec. 466.600.  HEARING FOR REVOCATION OR SUSPENSION.  (a)  
  Before the commission revokes or suspends a video lottery terminal
  provider's registration or approval or video lottery retailer's or
  video lottery manager's license, or imposes monetary penalties for
  a violation of this subchapter, the commission shall provide
  written notification to the license, certificate, or approval
  holder of the revocation, the period of suspension, or the monetary
  penalty. The notice shall include:
               (1)  the effective date of the revocation or the period
  of suspension or the amount of the monetary penalty, as applicable;
               (2)  each reason for the revocation, suspension, or
  penalty;
               (3)  an explanation of the evidence supporting the
  reasons;
               (4)  an opportunity to present the holder's position in
  response on or before the 15th day after the effective date of the
  revocation; and
               (5)  a statement explaining the holder's right to an
  administrative hearing to determine whether the revocation,
  suspension, or penalty is warranted.
         (b)  The commission shall adopt rules to implement this
  section.
         Sec. 466.601.  ABSOLUTE PRIVILEGE OF REQUIRED
  COMMUNICATIONS AND DOCUMENTS.  (a)  Any communication, document, or
  record of a video lottery central system provider, video lottery
  terminal provider, video lottery retailer, or video lottery
  manager, an applicant, or a holder of a license, certificate of
  registration, finding of suitability, or other affirmative
  regulatory approval that is made or transmitted to the commission
  or any of its employees to comply with any law, including a rule of
  the commission, to comply with a subpoena issued by the commission,
  or to assist the commission or its designee in the performance of
  their respective duties is absolutely privileged, does not impose
  liability for defamation, and is not a ground for recovery in any
  civil action.
         (b)  If a communication, document, or record provided under
  Subsection (a) contains any information that is privileged under
  state law, that privilege is not waived or lost because the
  communication, document, or record is disclosed to the commission
  or any of the commission's employees.
         (c)  The commission shall maintain all privileged
  information, communications, documents, and records in a secure
  place as determined in the commission's sole discretion that is
  accessible only to members of the commission and authorized
  commission employees.
         Sec. 466.602.  INTELLECTUAL PROPERTY RIGHTS OF COMMISSION.  
  The legislature finds and declares that the commission has the
  right to establish ownership of intellectual property rights for
  all lottery products, including video lottery terminals and related
  video lottery equipment.
         SECTION 30.  Section 467.001, Government Code, is amended by
  amending Subdivision (9) and adding Subdivision (12) to read as
  follows:
               (9)  "Person that has a significant financial interest
  in the lottery" means:
                     (A)  a person or a board member, officer, trustee,
  or general partner of a person that manufactures, distributes,
  sells, or produces lottery equipment, video lottery equipment,
  video lottery games, video lottery central systems, supplies,
  services, or advertising;
                     (B)  an employee of a video lottery terminal
  provider, video lottery central system provider, or person that
  manufactures, distributes, sells, or produces lottery equipment, 
  supplies, services, or advertising or video lottery equipment or
  games and that employee is directly involved in the manufacturing,
  distribution, selling, or production of lottery equipment,
  supplies, services, or advertising or video lottery equipment or
  games;
                     (C)  a person or a board member, officer, trustee,
  or general partner of a person that has made a bid to operate the
  lottery in the preceding two years or that intends to make a bid to
  operate the lottery or an employee of the person if the employee is
  directly involved in making the bid; or
                     (D)  a sales agent, video lottery retailer, video
  lottery manager, video lottery terminal provider, or video lottery
  central system provider.
               (12)  "Video lottery central system," "video lottery
  equipment," "video lottery game," "video lottery manager," "video
  lottery retailer," and "video lottery terminal provider" have the
  meanings assigned by Section 466.002.
         SECTION 31.  Section 467.021(a), Government Code, is amended
  to read as follows:
         (a)  The commission is composed of:
               (1)  three voting members appointed by the governor
  with the advice and consent of the senate; and
               (2)  the comptroller, who serves as an ex officio,
  nonvoting member.
         SECTION 32.  Section 467.031, Government Code, is amended to
  read as follows:
         Sec. 467.031.  DIVISIONS; DIRECTOR; CONTRACT.  The
  commission shall establish separate divisions to oversee bingo and
  the state lottery.  The commission shall employ a director to
  oversee video lottery and shall enter into an intra-agency
  agreement with the Texas Racing Commission for the Texas Racing
  Commission to be responsible for performing the inspections and
  regulatory functions specified in the agreement at racetracks on
  behalf of the Texas Lottery Commission.
         SECTION 33.  Section 467.035(a), Government Code, is amended
  to read as follows:
         (a)  The commission may not employ or continue to employ a
  person who owns a financial interest in:
               (1)  a bingo commercial lessor, bingo distributor, or
  bingo manufacturer; or
               (2)  a lottery sales agency, [or] a lottery operator, a
  video lottery retailer, a video lottery manager, a video lottery
  terminal provider, a video lottery central system provider, or a
  manufacturer of video lottery games.
         SECTION 34.  Section 467.108, Government Code, is amended to
  read as follows:
         Sec. 467.108.  REPRESENTATION BY FORMER OFFICER OR EMPLOYEE.  
  (a)  A former commission member, former executive director, or
  former director may not:
               (1)  [for compensation,] represent a person, either
  with or without compensation, [that has made or intends to make a
  bid to operate the lottery] before the commission before the fifth
  [second] anniversary of the date that the person's service in
  office or employment with the commission ceases;
               (2)  represent any person or receive compensation for
  services rendered on behalf of any person regarding a particular
  matter in which the former officer or employee participated during
  the period of service or employment with the commission, either
  through personal involvement or because the matter was within the
  scope of the officer's or employee's official responsibility; or
               (3)  [for compensation] communicate on behalf of any
  person, whether compensated or not compensated, directly with a
  member of the legislative branch to influence legislation on behalf
  of a person that has any [a significant financial] interest in the
  lottery, before the fifth [second] anniversary of the date that the
  person's service in office or employment with the commission
  ceases.
         (b)  A person commits an offense if the person violates this
  section. An offense under this section is a felony of the third
  degree [Class A misdemeanor].
         SECTION 35.  Section 411.108, Government Code, is amended by
  adding Subsection (d) to read as follows:
         (d)  The Texas Lottery Commission may obtain from the
  department, subject to an interagency agreement entered into under
  Section 466.020(d) or 466.206, criminal history record information
  maintained by the department that relates to any natural person,
  corporation, association, trust, partnership, limited partnership,
  joint venture, government, subsidiary, or other entity, regardless
  of its form, structure, or nature that the commission has the
  authority to investigate under Chapter 466 as related to the
  commission's operation and oversight of video lottery. Criminal
  history record information obtained by the commission under this
  subsection may be released or disclosed only as provided in
  Sections 466.022(d) and 466.206.
         SECTION 36.  Section 47.06(e), Penal Code, is amended to
  read as follows:
         (e)  An offense under this section is a felony of the third
  degree [Class A misdemeanor].
         SECTION 37.  Section 47.09, Penal Code, is amended by
  amending Subsection (a) and adding Subsection (c) to read as
  follows:
         (a)  It is a defense to prosecution under this chapter that
  the conduct:
               (1)  was authorized under:
                     (A)  Chapter 2001, Occupations Code;
                     (B)  Chapter 2002, Occupations Code; or
                     (C)  the Texas Racing Act (Article 179e, Vernon's
  Texas Civil Statutes);
               (2)  consisted entirely of participation in gambling or
  other gaming activity that:
                     (A)  is or may be permitted under the Indian
  Gaming Regulatory Act (Pub. L. No. 100-497), without regard to
  whether the gambling or gaming activity is conducted by an Indian
  tribe to which that Act applies; and
                     (B)  is conducted:
                           (i)  by an Indian tribe or tribal
  organization that was included on the January 30, 1998, list of
  recognized Indian tribes by the United States secretary of the
  interior as required under 25 U.S.C. Section 479a-1; and
                           (ii)  on premises designated by the tribe or
  tribal organization for that gambling or other gaming activity on
  land that was held in trust or recognized as tribal land of that
  tribe or tribal organization by the federal government on January
  1, 1998;
               (3)  was a necessary incident to activity described by
  Subdivision (2);
               (4)  consisted entirely of participation in the state
  lottery, including the video lottery system, authorized by Chapter
  466, Government Code; or
               (5) [(3)]  was a necessary incident to the operation of
  the state lottery, including the video lottery system, and was
  directly or indirectly authorized by:
                     (A)  Chapter 466, Government Code;
                     (B)  the lottery division of the Texas Lottery
  Commission;
                     (C)  the Texas Lottery Commission; or
                     (D)  the director of the lottery division of the
  Texas Lottery Commission.
         (c)  Subsection (a)(3) applies to a person manufacturing,
  distributing, possessing, or operating a gambling device with the
  authorization of the Texas Lottery Commission under Subchapter K,
  Chapter 466, Government Code.
         SECTION 38.  Chapter 47, Penal Code, is amended by adding
  Section 47.095 to read as follows:
         Sec. 47.095.  INTERSTATE OR FOREIGN COMMERCE DEFENSE.  It is
  a defense to prosecution under this chapter that a person sells,
  leases, transports, possesses, stores, or manufactures a gambling
  device with the authorization of the Texas Lottery Commission under
  Subchapter K, Chapter 466, Government Code, or on behalf of an
  Indian tribe in connection with activity described by Section
  47.09(a)(2) for transportation in interstate or foreign commerce.
         SECTION 39.  (a)  As soon as practicable after the
  constitutional amendment authorizing a state video lottery system
  to operate video lottery games at certain horse and greyhound
  racetracks and providing that federally recognized Indian tribes
  are not prohibited from conducting games of chance on certain
  Indian lands proposed by the 82nd Legislature, Regular Session,
  2011, is approved by the voters and becomes effective, the Texas
  Lottery Commission and the Texas Racing Commission shall adopt the
  rules necessary to implement video lottery in accordance with
  Subchapter K, Chapter 466, Government Code, as added by this Act.
         (b)  Before the proposed constitutional amendment is
  submitted to the voters, the Texas Lottery Commission may expend
  money from the commission's appropriation for the 2012-2013 state
  fiscal biennium for purposes of conducting pre-implementation
  activities to establish the state video lottery system in
  accordance with Subchapter K, Chapter 466, Government Code, as
  added by this Act. Notwithstanding Section 466.355, Government
  Code, the money authorized to be expended under this section may be
  withdrawn from the state lottery account and considered a part of
  the transfer of funds from the state lottery account authorized
  under Section 466.589, Government Code, as added by this Act, to
  fund the establishment of the state video lottery system.
         (c)  If the proposed constitutional amendment is approved by
  the voters, the Texas Lottery Commission and the Texas Racing
  Commission shall adopt initial rules for purposes of implementing
  video lottery in accordance with Chapter 466, Government Code, as
  amended by this Act, not later than December 1, 2011. Chapter 2001,
  Government Code, does not apply to the adoption of those rules.
  Rules adopted under this section shall expire not later than
  September 1, 2014.
         (d)  Notwithstanding Chapter 466, Government Code, as
  amended by this Act, the Texas Lottery Commission may not issue a
  video lottery retailer or video lottery manager license to an
  applicant under that chapter unless the applicant, on or before
  September 1, 2011, pays to the commission an initial application
  fee in the following amount:
               (1)  for an applicant who holds a class 1 racetrack
  license, $25 million; or
               (2)  for an applicant who holds a class 2 or class 3
  horse racetrack license or a greyhound racetrack license, $15
  million.
         (e)  If the proposed constitutional amendment is not
  approved by the voters, the Texas Lottery Commission shall
  reimburse the full amount of the initial application fee paid by an
  applicant under Subsection (d) of this section not later than
  December 1, 2011.
         SECTION 40.  The change in law made by this Act applies only
  to an offense committed on or after the effective date of this Act.  
  An offense committed before the effective date of this Act is
  covered by the law in effect when the offense was committed, and the
  former law is continued in effect for that purpose. For purposes of
  this section, an offense was committed before the effective date of
  this Act if any element of the offense was committed before that
  date.
         SECTION 41.  Sections 1 through 38 and 40 of this Act take
  effect on the date the constitutional amendment authorizing a state
  video lottery system to operate video lottery games at certain
  horse and greyhound racetracks and providing that federally
  recognized Indian tribes are not prohibited from conducting games
  of chance on certain Indian lands proposed by the 82nd Legislature,
  Regular Session, 2011, becomes effective.  Section 39 of this Act
  and this section take effect immediately if this Act receives a vote
  of two-thirds of all the members elected to each house, as provided
  by Section 39, Article III, Texas Constitution.  If this Act does
  not receive the vote necessary for immediate effect, Section 39 of
  this Act and this section take effect September 1, 2011.
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