DFS Ruled Illegal in Texas

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Texas Attorney General Ken Paxton issued a written opinion Tuesday, declaring daily fantasy sports (DFS) to be illegal under current state law. The two leading DFS sites, DraftKings and FanDuel, have both issued statements disagreeing with Paxton, but it does not appear that either intends on withdrawing from the state any time soon.

It does not seem that Paxton has it out for DFS; he wasn’t “going after” the DFS big boys. Rather, the issued the opinion in response to questions asked of him by Texas State Representative Myra Crownover, who requested a ruling on a) whether DFS was legal and b) whether fantasy sports were legal if the house does not take a rake.

In answering the first question, he dove right into the “skill versus chance” argument, but ended said argument very quickly. Paxton wrote that while it may be true that skill plays a role in daily fantasy sports contests, it is unequivocally true that chance also plays a role.

“Texas law does not require that skill predominate,” Paxton wrote. “Instead, chapter 47 requires only a
partial chance for there to be a bet.”

“Texas courts have confirmed this plain language in the statute. And this office has previously concluded that ‘the plain language of section 47.01(1)…renders irrelevant the matter of whether poker is predominantly a game of chance or skill…If an element of chance is involved in a particular game, it is embraced within the definition of ‘bet’”

Paxton also shoots down the “actual contestants” arguments the DFS companies have frequently tried to advance. DraftKings and FanDuel try to convince lawmakers that fantasy sports contestants are the “actual contestants” competing in a game of skill, so bets they place do not count as gambling. Paxton says that the athletes in the football, baseball, etc. games are the “actual contestants.”

“For example, if a person plays in a golf tournament for an opportunity to win a prize, he or she is within the actual contestant exclusion to the definition of betting,” he wrote. “If instead the person does not play in that tournament but wagers on the performance of an actual contestant, he or she is gambling under Texas law. To read the actual-contestant exception as some suggest would have that exception swallow the rule.”

As to Crownover’s second question about the legality of fantasy sports if the house does not take a rake, Paxton said that that is likely ok, depending on the circumstances. Using season-long fantasy sports as an example, as season-long contests are often played with no rake, Paxton wrote that as long as the following conditions are met, the game is legal:

(1) the actor engaged in gambling in a private place;
(2) no person received any economic benefit other than personal winnings; and
(3) except for the advantage of skill or luck, the risks of losing and the chances of winning were the same for all participants

FanDuel responded, as expected, with a statement on its website:

Today’s advisory opinion by the Attorney General of Texas is founded on a misinterpretation of the law and misunderstanding of the facts about fantasy sports.  Fantasy sports has always been a legal contest of skill in Texas.  The Texas legislature has expressly recognized that payment of an entry fee to compete for prizes in a contest of skill is not illegal gambling. Texans have long enjoyed participating legally in a wide variety of contests on that basis.  The Attorney General’s advisory prediction that a Texas court might think fantasy sports fall outside that protection because fantasy sports contestants are not actually participating in the sports events disregards that the selection of a fantasy roster to compete against other contestants’ selections is a separate valid contest of skill all its own.

DraftKings also posted a response:

We strongly disagree with the Attorney General’s prediction about what the courts may or may not do if ever presented with the issue of whether daily fantasy sports are legal under Texas law. The Texas Legislature has expressly authorized games of skill, and daily fantasy sports is a game of skill. The Attorney General’s prediction is predicated on a fundamental misunderstanding of DFS. We intend to continue to operate openly and transparently in Texas, so that the millions of Texans who are fantasy sports fans can continue to enjoy the contests they love.

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