In a situation nearly identical to what happened in Illinois a few weeks ago, Texas Attorney General Ken Paxton has responded to a request from a state representative who asked if Paxton believes Daily Fantasy Sports should be illegal under state law.
Not surprisingly, Paxton said that he believes DraftKings and FanDuel both violate state law, saying that “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.”
In this case, Paxton is referring to companies holding DFS contests as “the house” since they take a cut of each contest. This is an important distinction because it means that Paxton believes that traditional fantasy sports leagues are legal, because “participants generally split any pot amongst themselves, so there is no house that takes a cut”.
Paxton also notes that while proponents of DFS say that skill is required to predict what players will have the best performances in a game, Texas law says that it doesn’t matter if any skill is required, because only a “partial [aspect of] chance” would make it gambling.
Paxton confirmed this by referencing a previous decision where a Texas court concluded that poker was considered gambling, regardless of how much of the game is considered chance or skill. “If an element of chance is involved in a particular game, it is embraced within the definition of ‘bet,'” he said.
In his conclusion, Paxton says that a person would be breaking state law by just participating in DFS contests:
Under section 47.02 ofthe Penal Code, a person commits an offense if he or she 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.
Because the outcome of games in daily fantasy sports leagues depends partially on chance, an individual’s payment of a fee to participate in such activities is a bet. Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling ‘under section 47.02 ofthe Penal Code. – Ken Paxton, Texas AG
Interestingly, Paxton decides to focus his conclusion on the illegality of a player participating in a DraftKings or FanDuel contest. This is a different stance than other state AGs have taken, which is to focus on the illegality of the companies themselves.
It’s important to note that this is just a written opinion by the state’s AG, and isn’t legally binding. A Texas court would have to hear a case before any legal action could be taken against DFS players or operators.
As expected, DraftKings issued a quick rebuttal against the AG’s decision, reiterating that DFS is a game of skill, and games of skill are legal under Texas law.
“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.” – Randy Mastro, counsel to DraftKings and Partner at Gibson, Dunn & Crutcher LLP
As we’ve said before, it’s going to continue to get messy before we see any state or federal action that gives us a definitive answer on the legality of DFS. More than likely, the issue will need to be settled by lawmakers instead of judges, meaning we’ll need to see new legislation that regulates DFS once and for all.
In the meantime, wouldn’t you like to see what the billable hours for DraftKings’ and FanDuel’s lawyers look like this month?