Texas House Speaker Joe Straus III’s family could earn tens of millions of dollars if lawmakers and voters agree to let racetracks install slot machines. The magnitude of the payout is spelled out in a pending lawsuit in Dallas County. It’s unusual—even in Texas—to encounter a single piece of legislation that has the potential to put millions of dollars in the pocket of a top state leader.
Responding to Texas Observer inquiries about the disputed deal, Straus’s office announced that he will transfer his decade-old Austin Jockey Club stock to his father. Straus, who declined to be interviewed for this article, is treating the first big ethics test of his speakership with caution. The legislature did not approve slots during Straus’ first session as speaker in 2009, but the industry is expected to pitch the gambling machines to lawmakers next year as a solution to the state’s budget crisis.
In 2005, Straus won one horse race and lost another. San Antonio-area voters picked the Republican insurance executive to fill a vacated House seat, but the same day voters participating in a non-binding referendum in the Austin suburb of Pflugerville opposed plans by Austin Jockey Club to build a racetrack there. Straus and his father, Joe Straus, Jr., each own 3.5 percent of Austin Jockey, according to Texas Racing Commission records. Six months after the Pflugerville snub, Austin Jockey sold its sole asset—a state license for a non-existent racetrack—for $1.5 million, according to a 2005 contract recently disclosed in court filings.
The deal potentially was worth much more to Straus and his partners because the buyers agreed to pay them 5 percent of anything that they grossed off new gambling activities that the state might authorize in the future. The contract capped Austin Jockey’s take from new games at $315 million—210 times the sales price of the track license. Austin Jockey’s contract quantifies the extraordinary premium that the racing industry puts on slots. At the maximum payout, the deal would yield more than $11 million each for Straus and his father. The elder Straus also chairs the company that operates San Antonio’s Retama Park racetrack.
Yet daunting political hurdles stand between Austin Jockey and such a windfall. The legislature has to propose a constitutional amendment legalizing slots. Voters then have to ratify the slots amendment. Last year stars seemed to miraculously align. Straus’s election to House Speaker prompted speculation that he would approve the industry’s demands for slots. Straus—who has horseracing in his blood and investment portfolio—duly reported his Austin Jockey investment in state-mandated personal financial disclosures, but the public was unaware of the kicker clause in the sales contract that would pay Austin Jockey investors big money if Texas legalized slots.
To dampen conflict rumors, on the ninth day of the session the new speaker formally recused himself from “matters related to the expansion of gambling at pari-mutuel racetracks.” Given a house speaker’s influence, however, could Straus completely divorce himself from the issue without abdicating his speakership? Soon after his recusal, for example, Straus appointed Seguin Republican Rep. Ed Kuempel to head the House committee that oversees gambling matters. In the sessions preceding this appointment, Kuempel voted for a variety of gambling measures. Still, slot-machine advocates got nowhere last year—even with a racetrack investor installed as speaker.
Austin Jockey investors faced yet another hurdle. Last fall, the Racing Commission refused to transfer Austin Jockey’s track license to the proposed buyer, a company controlled by David Alameel, the founder of a chain of dental clinics in Dallas. Alameel claims in court filings to have spent $16 million chasing the track license, included hiring former lawmaker Ron Wilson as a consultant and bringing in Dallas Democratic Rep. Yvonne Davis as his junior partner in the venture. In late 2008, Rep. Davis personally appealed to racing commissioners to approve the license transfer. Shortly before he was elected speaker, Straus criticized his colleague’s actions, telling the Observer, “I would never appear before a government regulatory body as a sitting lawmaker to make a request such as that.” (“The Inside Track”, December 12, 2008.)
Explaining their refusal to grant the license to Alameel’s group, racing commissioners noted that the Department of Public Safety could not verify that Alameel had enough cash to build and operate a track. Racing Commission Chair Rolando Pablos scolded Austin Jockey President Joe Archer at a December meeting for trying to transfer the license to “a grossly unqualified buyer.”
By rejecting Alameel, the Racing Commission kept the track license in the hands of Austin Jockey investors, including Straus’s family. Yet the commission also threatened to revoke the license altogether unless Austin Jockey swiftly submits credible plans to get a racetrack up and running. This threat puts awkward pressure on the Straus-related company as the racetrack industry again prepares to lobby next year’s legislature for slots.
Under the gun, Austin Jockey notified Alameel in October that it regarded his failure to get the license transferred into his name as a breach of contract. That same month, according to the speaker’s office, Austin Jockey approved Speaker Straus’ request to sell his share of the company to his father. For unexplained reasons, Austin Jockey did not submit its pending request for the Racing Commission to approve this stock transfer until March, after the Observer started inquiring about the speaker’s stakes in Austin Jockey.
Meanwhile, Alameel sued Austin Jockey in state court in Dallas to bar the company from doing anything with the disputed license until all related litigation is resolved. Alameel attached a copy of the sales contract for the racing license to the lawsuit. Undaunted, Austin Jockey President Joe Archer told Racing Commissioners in December that his company plans to build a racetrack on an undisclosed tract in southern Travis County. Archer said Victoria-based Cliff Thomas, Jr. will bankroll the project. Thomas is a gubernatorial appointee to the Guadalupe-Blanco River Authority Board and owns Speedy Stop convenience stores.
A spokesperson for Travis County Commissioners Court Judge Sam Biscoe says nobody has approached that office about a new track. Archer, Thomas and Alameel’s attorney, Gregory Shamoun, did not return calls for this article.
Even as they threaten to revoke Austin Jockey’s license if it doesn’t build a track, state racing commissioners know that most Texas tracks are losing money and lucrative slots are about the only thing that will get new tracks built. Austin Jockey is unlikely to build a track unless lawmakers embrace slots next year. How the legislature tackles the issue also will determine if the Austin Jockey stock that the speaker is selling to his father is worth millions—or next to nothing. These days, Texas horseracing investments are one big political gamble.