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As the third state to consider paid daily fantasy sports illegal, Texas is now another high risk bet for daily fantasy sports services.

Posted on January 22, 2016

At the request of State Representative Myra Crownover, Chairperson of the Committee on Public Health in the Texas House of Representatives, Texas Attorney General Ken Paxton issued an opinion on the legality of daily fantasy sports leagues such as DraftKings.com and FanDuel.com.  The opinion focuses on the “rake” charged by typical daily fantasy sports services as distinguishing those leagues from traditional fantasy sports. 

Unlike traditional, season-long (or rotisserie) fantasy sports leagues, “daily” fantasy sports services have very short durations – a day or, in some sports such as football, a five-day window including a weekend.  Fantasy sports in general have seen explosive growth in recent years, expanding to such diverse sports as basketball, baseball, hockey, and even golf.  Coupled with rumors of rigging and use of inside information by some employees, revenues for paid daily fantasy sports in particular grew so rapidly growth that the Nevada Gaming Commission and the New York Attorney General were led to question the legality of such services.  For what appear to be similar reasons, Representative Crownover sought an opinion of the Texas Attorney General on two questions:

1.         Whether daily fantasy sports leagues such as DraftKings.com and FanDuel.com are permissible under Texas law; and

2.      Whether it is legal to participate in fantasy sports leagues where the house does not take a “rake" and the participants only wager amongst themselves.

The first issue targets services that facilitating daily fantasy leagues, while the second targets fantasy sports in general and the legality of merely participating in fantasy sport under Texas law. 

Attorney General Paxton opined that the charging of a fee (or “rake”) retained by the service provider from amounts paid to participate in a daily fantasy sports league constituted placing a bet on a contest where the outcome was at least partially dependent on chance.  Skill (or luck) by a participant in drafting players is subject to the vagaries of unpredictable circumstances based on injury to or ejection of selected players, impact of weather conditions on player performance, and bad calls by referees.  Presumably writing with tongue-in-cheek, Attorney General Paxton stated:

[O]dds are favorable that a court would conclude that participation in daily fantasy sports leagues is illegal gambling under section 47.02 of the Penal Code

The “actual contestant” exception to the definition of “bet” had previously been determined by the Texas Attorney General’s Office to require direct participation in the contest and not mere wagering on the outcome of the contest. 

Traditional fantasy sports leagues were distinguished as not involving any portion of the participation fee being retained by the league "commissioner," but instead being paid out wholly to the participants.  A defense to prosecution under the Texas Penal Code exists where “no person received any economic benefit other than personal winnings.” 

As the third state to consider paid daily fantasy sports illegal, Texas is now another high risk bet for daily fantasy sports services.  Texas residents may see their participation is such leagues excluded over fears of potential prosecution.