Texas Attorney General Thinks DraftKings, FanDuel Are Illegal In Lone Star State

draftkingsAnother state’s lead prosecutor has come to the conclusion that daily fantasy sports [DFS] sites like DraftKings and FanDuel are not legally protected games of skill, but are instead illegal games of chance. This time, it’s the attorney general for the state of Texas.

In an opinion [PDF] released this morning, Texas AG Ken Paxton responds to a query from the chair of the Texas House of Representative’s Committee on Public Health, who wanted to know (A) if DraftKings and FanDuel are legal in the state, and (B) whether it’s okay to run a fantasy sports league where the operator does not receive a cut of the wagers involved.

In response, Paxton points to chapter 47 of the Texas Penal Code, which defines illegal “gambling” as when, among other things, a person “makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest.”

But what is a “bet”? The state law defines the term as “an agreement to win or lose something of value solely or partially by chance.” Thus, DFS sites contend that entrants are not placing “bets” but are instead paying entry fees. Unlike, say your office Super Bowl pool, the prize pools on DraftKings and FanDuel are guaranteed and not solely contingent on the amount of money collected.

And Paxton notes that the state does allow for an exception to the “betting” when it involves a prize or “compensation to the actual contestants in a bona fide contest for the determination of skill, speed, strength, or endurance or to the owners of animals, vehicles, watercraft, or aircraft entered in a contest.” As we’ve seen in other states, this is basically a way to allow for things like horse-racing, and prize fighting.

To Paxton, the important question involved in determining the legal status of DFS is “whether the win or loss is determined solely or partially by chance.”

He acknowledges that skill may be involved in the predicting of which players will perform the best, but points out that “Texas law does not require that skill predominate.”

Instead, contends Paxton, the law only requires a partial chance for there to be a bet. Otherwise, he argues, poker would be considered an allowable game of skill in the state.

“If an element of chance is involved in a particular game, it is embraced within the definition of ‘bet,'” he writes. “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.”

Things like injury, weather, condition of the equipment, and officiating all play into the outcome, notes the AG.

“All of these random circumstances, especially if they occur after the participants’ selections are locked in, amount to chance and do not involve any skill on the part of the participant,” writes Paxton. “Chance happens, especially on game day.”

Based on that, Paxton believes that a judge would similarly conclude that DFS violates state law.

With regard to the second question asked of him, the AG says that traditional fantasy sports pools — i.e., season-long leagues where all entry fees are paid out only to those playing the game — are fine under Texas law… or at least mostly fine.

“Though participating in a traditional fantasy sports league is also illegal gambling” under the rules set out in the Penal Code, concludes Paxton, the law also includes a defense against prosecution “when play is in a private place, no person receives any economic benefit other than personal winnings, and the risks of winning or losing are the same for all participants.”

In a statement emailed to Consumerist, a lawyer for DraftKings says, “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 are 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.”

The statement from FanDuel hits many of the same beats:
“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.”

The AG’s opinion on the issue is not, by itself, a declaration that these sites must shut down operations in Texas. Paxton could, like the attorney general in New York state, try to compel the sites to stop accepting users in the state. It could also, as we saw in Massachusetts, result in tweaks to the DFS sites’ operations that would make it more amenable to the state. Or state legislators could try to adapt Texas law to include DFS sites as explicitly legal operations.