Fantasy Sports Sites' Loss in Texas

by | January 20, 2016

By Chuck Lindell

Participating in daily fantasy sports amounts to illegal gambling in violation of Texas law, according to an opinion released Tuesday by Attorney General Ken Paxton.

"Odds are favorable that a court would conclude that participation in daily fantasy sports leagues is illegal gambling," the opinion said.

Under Texas law, it is illegal to wager on the "partial or final result of a game or contest or on the performance of a participant in a game or contest."

Daily fantasy operators argue that their contests are not games of chance because success is largely due to the skill and preparation of participants.

"However," Paxton concluded, "Texas law does not require that skill predominate."

"It is beyond reasonable dispute that daily fantasy leagues involve an element of chance regarding how a selected player will perform on game day. The participant's skill in selecting a particular player for his team has no impact on the performance of the player or the outcome of the game," the opinion said.

In Texas, attorney general opinions are nonbinding -- courts have the final determination of what is legal or not -- but the opinions also carry weight in legal challenges.

Paxton's opinion was sought by state Rep. Myra Crownover, R-Denton, who also asked the attorney general to determine the legality of season-long fantasy leagues.

Such leagues, Paxton said, also appear to violate Texas gambling laws. However, he added, courts are not likely to hold participants in traditional leagues accountable because the law allows for private games where nobody receives a "rake" or a portion of entry fees to run the game, and all participants share the same risk of winning and losing.

Participants in daily fantasy choose from a menu of athletes from professional or amateur sports, compiling points based on statistical performance, such as yards gained in football or points scored in basketball.

The online games typically last one day to one week, with the faster turnaround allowing more contests to be played -- and more money to be spent -- than the season-long games in fantasy leagues formed among friends and family.

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

Paxton's opinion came amid greater scrutiny of daily fantasy sports by other states.

Nevada banned the games in October when its Gaming Control Board declared that the games were illegal gambling, joining five other states where operators block residents from playing -- Arizona, Iowa, Louisiana, Montana and Washington.

New York's attorney general moved to ban the fantasy sites as illegal gambling operations, winning a short-lived court order to stop the businesses from operating in December. An appeals court judge halted the ban after an emergency appeal by FanDuel and DraftKings, the largest concerns in the daily fantasy business, allowing the businesses to operate in New York while the appeal continues.

Illinois' attorney general also issued a late-December opinion finding that daily fantasy sports violated the state's gambling laws, prompting lawsuits from FanDuel and DraftKings, while the attorney general of South Dakota came to a similar conclusion but added that he was awaiting guidance from the state's gaming regulators.

In addition, a federal grand jury in Florida is investigating fantasy sports, while officials in California, Georgia, Maryland, Massachusetts and Michigan are studying the legality of the games, according to published reports.

(c)2016 Austin American-Statesman, Texas