One Fantasy Sports Site Strikes Deal With Texas While Another Sues

by | March 8, 2016

By Asher Price

Weeks after the Texas attorney general declared that games offered by popular daily fantasy sports sites violate Texas laws against gambling, a major player in the business has agreed to stop taking paid contest entries -- and another has decided to press its case in the courts.

Fantasy sports site FanDuel will cease taking paid entries for cash prizes on May 2, under a settlement with the state of Texas announced by Attorney General Ken Paxton on Friday.

Within an hour of the settlement announcement, FanDuel competitor DraftKings sued Paxton in state district court in Dallas County, asking for a ruling on the legality of daily fantasy sports sites under Texas law.

As part of the settlement with FanDuel, Paxton agreed not to take any legal action against the company in connection with the operation of its contests.

In January, Paxton issued a nonbinding opinion that paid online daily fantasy sports contests, like those FanDuel operates, are illegal.

"I commend FanDuel for responsibly and pro-actively working with us to reach this settlement," Paxton said in a statement. "This will spare both the company and the taxpayers of Texas the expense of an extensive lawsuit that I believe would only affirm what my office has already determined."

Unlike some other states, Texas law only requires "partial chance" for something to count as gambling; it does not require that chance predominate.

By paying entry fees, participants in the online contests are placing improper bets on the performance of athletes, Paxton said in the nonbinding opinion, adding that daily fantasy operators also violate gambling laws by keeping a portion of the fees.

"Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut," Paxton said in the opinion.

Traditional fantasy sports leagues that are not operated by a third party for revenue are, as a general rule, legal under Texas law, according to the attorney general's office. In those leagues, participants generally split any pot among themselves, the attorney general's office said.

FanDuel will continue to operate its free games in Texas -- without cash prizes, and it pledged to try to bring back paid games by pressing lawmakers at the next legislative session in 2017.

"We believe FanDuel has always been legal in Texas and strongly disagree with the recent advisory opinion of the attorney general, but understand that the laws surrounding fantasy sports require clarity," the company said in a statement. "As such, we have worked with the Texas attorney general to map out our plan to wind down our operations in Texas."

DraftKings has taken a seemingly more aggressive position.

On Friday, the company filed the lawsuit to "get clarity on the legal situation," DraftKings lawyer Rob Walters told the American-Statesman.

Daily fantasy is a relatively new and largely self-regulated industry, with operators required to interpret each state's laws -- most of which, like Texas, do not mention fantasy sports -- to determine whether the games are allowed.

The stakes are high. DraftKings, for example, said it will distribute more than $1 billion in winnings this year, and ­FanDuel said it paid more than $560 million to game winners in 2014 on a website that gets 15 million entries a week during the NFL season.

(c)2016 Austin American-Statesman, Texas