Ken Paxton, Attorney General of the great State of Texas, issued Opinion No. KP-0057 where he concluded that, "A court would likely determine that participation in daily fantasy sports leagues is illegal gambling..."
He further concluded that, "Though participating in a traditional fantasy sports league is also illegal gambling...participants in such leagues may avail themselves..." of certain statutory defenses.
In short, the Texas Attorney General concluded that daily fantasy sports leagues are illegal under current Texas law, and that it is up to the legislature whether to legalize them. Also, traditional fantasy sports leagues are also illegal, but that an affirmative defense exists for traditional, season long fantasy sports league.
In response to a request from Rep. Myra Crownover (Denton), the Texas Attorney General issued an opinion on whether:
- Daily fantasy sports leagues such as DraftKings.com and FanDuel.com are permissible under Texas Law, and
- ...[i]t is legal to participate in fantasy sports leagues where the house does not take a "rake" and the participants only wager amongst themselves.
In responding to the first question, the Attorney General said, "The answer...turns on whether participants make a bet." Texas Penal Code Sec. 47.01 provides, "'Bet'" means an agreement to win or lose something of value solely or partially by chance."
Sec. 47.01(1)(B) also provides that a bet does not include, "an offer of a prize, award, 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;" among other exclusions.
The Attorney General states, "The dispositive question then is whether the win or loss is determined solely or partially by chance." In deciding that issue, the opinion provides:
Proponents of daily fantasy sports games argue that skill is required to predict which players will have the best performance for their position in any particular game (citation omitted). This may well be true. However, Texas law does not require that skill predominate. Instead, Chapter 47 requires only a partial chance for there to be a bet.
The opinion goes on:
It is beyond reasonable dispute that daily fantasy leagues involve an element of chance regarding how a selected player will perform on game day...
Chance happens, especially on game day. "That's why they play the game" (citing Bud Monet, Random Shots, Morning Advoc. Dec. 30, 1965).
...the argument that skill so predominates that chance is minimal is nonetheless an admission that chance is an element and partial chance is involved (citation omitted). Accordingly, odds are favorable that a court would conclude that participation in daily fantasy sports leagues is illegal gambling..."
In response to the contestant exclusion provided in Sec. 47.01(1)(B), the Attorney General acknowledged that, "Texas courts have yet to address the actual-contestant exclusion from the definition of a 'bet'..." However, citing a 1994 Opinion, Attorney General Paxton wrote:
We noted that the Practice Commentary to the statute indicated the actual-contestant exclusion "is intended to exclude only awards and compensation earned by direct participation in the contest - the pole-vaulter's cup, the pro football player's salary - not the receipt of a wager made on its outcome."
The opinion noted that the Illinois Attorney General also concluded that a similar statutory exclusion in Illinois did not apply to daily fantasy sports following, in part, the Texas Attorney General's 1994 Opinion (No. LO-94-051).
Regarding traditional, season-long fantasy leagues, the Attorney General concluded:
Though participating in a traditional fantasy sports league is also illegal gambling..., participants in such leagues may avail themselves of a statutory defense to 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 short, as long as no one (e.g. the commissioner) takes a rake in a traditional fantasy league, you have a legal defense to prosecution.
What does it all mean?
In Texas, an Attorney General opinion has no force of law and is not legal precedent. It is an opinion as to the state of the law. The Texas Attorney General took no action, other than rendering the opinion, to prevent participation in daily fantasy sports as was done in other jurisdictions (New York, Nevada, etc.).
DraftKings immediately issued a statement in response to the Attorney General's opinion stating:
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.
Likewise, FanDuel issued a statement disagreeing with the opinion:
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.
No legal action has been taken by any of the major players or a state agency, so, for the time being, everything will continue as usual. Until it doesn't - which means until someone files suit or files criminal charges.
The risk for an individual is an ambitious prosecutor trying to make headlines and filing criminal charges. Now, gambling is a Class C misdemeanor under Texas Penal Code Sec. 47.02, which is the equivalent of a speeding ticket. For the gambling promoter, it would be a Class A misdemeanor, which is certainly worse but hardly a deterrent. Therefore, it would mean going to an awful lot of trouble to prosecute someone for playing or promoting daily fantasy sports (DFS) just for headlines given the consequences. The greater risk for the promoter would be an injunction shutting down operations.
3 Key Takeaways:
1. Nothing has changed. For the time being, everything remains the same. What has happened is the state's top attorney has rendered an opinion that daily fantasy sports leagues are illegal under current Texas law. It's not irrelevant or unimportant, but it is advisory, at best. The key players, FanDuel and DraftKings, are going to continue to operate in Texas.
2. It's just an opinion. Now laws have changed, not courts have ruled, and no lawsuits or criminal charges have been filed. Given the press the opinion has received, you would think it was inscribed on stone tablets from on high. There are key conclusions reached by the AG that could have easily gone the opposite way. To quote the opinion, "odds are favorable that a court would conclude that participation in paid daily fantasy sports leagues constitutes illegal gambling." The choice of words here is curious, but appropriate.
3. It could be wrong. The key distinction between DFS and traditional fantasy leagues, according to the Attorney General, is the application of the affirmative defense. A significant distinction, to be sure. However, the AG's rejection of the actual-participant exclusion to DFS is by no means a slam dunk (to continue the sports gambling metaphors). "[A]n offer of a prize, award, or compensation to the actual contestants in a bona fide contest for the determination of skill..." is specifically excluded from the definition of "bet." The Attorney General relied on its own 1994 interpretation (bolstered by an Illinois AG opinion, citing the 1994 Texas AG opinion - for what that circular exercise is worth) to conclude this exclusion only applies directly to the "athletes competing in the sporting event..." However, this limited interpretation is problematic. What about owners or sponsors who assist the athletes financially and share in the earnings? What about traditional fantasy sports sites that charge a fee for use of the service (CBS immediately comes to mind as the Fantasy New Hour airs on KTLT 98.1 The Ticket, a CBS radio affiliate, but there are others)? Are they now illegal because they "receive an economic benefit"?
The Attorney General suggests that, "To read the actual-contestant exception as some suggest would have that exception swallow the rule." The truth is, though, to read the definition of "bet" as the Attorney General does could result in raids on Mr. Gatti's and Chuck-E-Cheese's. I'm joking, of course, but to read the definition of "bet" as the AG suggests would swallow more than just the rule.
Let's be clear. More skill is required for DFS than picking stocks. Luck is required to win at picking stocks It's not required 4 DFS— Mark Cuban (@mcuban) January 19, 2016
Eventually the legislature will regulate daily fantasy sports. There is simply too much money at stake.
The NFL, MLB, NBA, and NHL all have vested interests in the viability of fantasy sports, and daily fantasy sports in particular. Jerry Jones and the Dallas Cowboys have a relationship with DraftKings. Other NFL teams do also.
Daily fantasy sports sites are not going away, and state governments will eventually decide that they are missing out on their piece of the pie. Regulation is inevitable, and smart regulation should benefit everyone. Its not like the DFS operators are without controversy, so a watchful eye over the industry is appropriate.
And this is certainly not the end of the discussion. Many states are considering how to address daily fantasy sports. If you want to keep track of your state, LegalSportsReport.com's state tracker can help.
I write this not just as an avid DFS player, which I am, but as a criminal defense attorney. It is a case I would love to see tried to a jury, especially a jury of fantasy sports players. I doubt it will ever reach that point, however, as legislators and special interests will undoubtedly come to some sort of agreement on how best to regulate the industry. It's probably for the best, though, because the jury could just as easily end up being comprised of disgruntled spouses of fantasy sports fanatics.