Now Texas Says DraftKings And FanDuel Are Gambling
Problems keep mounting for daily fantasy sports sites DraftKings and FanDuel, which have faced a slew of legal and regulatory challenges since an alleged insider betting controversy last year threw light on the legal ambiguities of their operations.
Texas Attorney General Ken Paxton today issued his opinion that daily fantasy sports is prohibited gaming as long as companies like DraftKings and FanDuel are taking a cut in participants’ bets.
“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 writes. Though the Attorney General’s finding won’t ban daily fantasy sports outright, it does provide guidance for state courts to do so under Texas law.
Curbing their businesses in Texas could have a major impact on daily fantasy sites’ bottom lines. Texas accounted for about 300,000 unique paying players in 2015, or about 8 percent of the total market of active paying players, according to research cited by Legal Sports Report. Texas is estimated to be among the top 5 markets for both DraftKings and FanDuel.
The two companies say they disagree with Paxton’s opinion. “[It’s] predicated on a fundamental misunderstanding of daily fantasy sports,” Randy Mastro, a lawyer for DraftKings, said in an emailed statement to WIRED. FanDuel went further, saying that the advisory opinion didn’t just misunderstand the facts about fantasy sports, but also misinterpreted the law.
Chance Versus Skill
The heart of the issue is whether daily fantasy sports is a game of skill or a game of chance—and how much chance exactly is involved. States have different laws—and different tests—to determine whether games are legal, depending whether skill or chance dominates. But as Chris Grove, an industry expert and editor of Legal Sports Report, recently told WIRED, there’s no universal test for quantifying the distribution of skill and chance in outcomes of a given game. “It’s fundamentally a matter of opinion,” Grove said. “It’s one of the single most frustrating points of gambling law.”
Even the Unlawful Internet Gambling Enforcement Act of 2006—the federal law banning online gambling that carved out an exception for fantasy sports—doesn’t supplant state law, legal experts have pointed out—which means the legality of daily fantasy sports may wind up being determined on a state-by-state basis.
Paxton’s opinion comes in the wake of five other state attorneys general laying out their positions on daily fantasy sports. The most contentious battlefront is New York, where Attorney General Eric Schneiderman briefly ordered both businesses to halt operations. The shutdown didn’t last—a higher court ruled the businesses could continue running while the appeals process ran its course—but across the US, the basic legality of daily fantasy sports is very much on trial.