Ken Paxton: Daily fantasy is illegal gambling

Contests offered by popular daily fantasy sports sites violate Texas laws against gambling, according to an opinion released Tuesday by Attorney General Ken Paxton.

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.

DraftKings, a leader in the lucrative and fast-growing daily fantasy industry, vowed to continue operating in Texas while criticizing Paxton’s opinion as uninformed and mistaken.

“The Texas Legislature has expressly authorized games of skill, and daily fantasy sports are a game of skill,” said Randy Mastro, a lawyer for DraftKings. “The attorney general’s (opinion) is predicated on a fundamental misunderstanding of DFS. We intend to continue to operate openly and transparently in Texas.”

FanDuel, another industry leader, raised similar objections but declined to say whether daily fantasy games would continue to be offered to Texans.

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.”

Paxton, writing that a Texas court would probably conclude that the contests are games of chance that violate gambling laws, disagreed with operators who argued that daily fantasy was not gambling because success is largely due to the preparation and skill of participants.

“Texas law does not require that skill predominate,” he concluded. “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.”

Paxton’s office declined to discuss whether the opinion could be followed by a lawsuit or other action to block daily fantasy games in Texas. “We cannot speculate on potential legal actions. We will allow the opinion to speak for itself,” spokeswoman Katherine Wise said.

The Fantasy Sports Trade Association, gathering Tuesday in Dallas to begin a two-day conference, said it “vehemently opposed” Paxton’s conclusions about the increasingly popular contests.

“Paxton’s deliberate misinterpretation of existing Texas law represents the type of governmental overreach that he himself professes to reject,” said Peter Schoenke, chairman of the association, which moved the meeting from Las Vegas after Nevada banned daily fantasy games last October.

Paxton’s opinion was sought by state Rep. Myra Crownover, R-Denton, who also asked him to determine the legality of season-long fantasy leagues that typically involve friends, family and co-workers.

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 state law allows for private games where nobody receives a “rake,” or a portion of entry fees, to run the game.

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.

Paxton’s opinion came amid greater scrutiny of daily fantasy sports by other states, with attorneys general in Illinois and South Dakota releasing similar opinions saying the games violate gambling laws.

New York’s attorney general moved to ban the fantasy sites as illegal gambling operations in December, winning a short-lived court order to stop the sites. An appeals court judge quickly halted the ban after an emergency appeal by FanDuel and DraftKings, allowing the games to operate in New York while the appeal continues.

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. Residents of Arizona, Iowa, Louisiana, Montana, Nevada and Washington are blocked from playing daily fantasy.

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