Daily Fantasy Sports May Not Be Able to Operate in Certain States

The Arcade 2.0™: Video Game Law Blog

Ian Ball
Tuesday, 08 March 2016

Daily fantasy sports, or DFS, is a multibillion-dollar industry whose legality is under scrutiny in several states across America. The industry leaders of DFS are DraftKings Inc. and FanDuel Inc. Currently, these companies are fighting certain states for the right to operate within their borders. Critics of DFS view the activity as illegal gambling and want the states to regulate DFS accordingly. Proponents of DFS assert that the activity is a contest of skill, not chance, therefore DFS does not constitute illegal gambling.

Texas State Representative Myra Crownover asked the Attorney General to issue an advisory opinion on whether DFS contests are legal in Texas. On January 19, Texas Attorney General Ken Paxton issued a non-binding advisory opinion that states he believes DFS constitutes illegal gambling under Texas law. Further, the advisory opinion explains the difference between DFS and traditional fantasy sports that makes traditional fantasy sports legal under Texas law. Only a court can issue a binding determination of the law. In contrast, an attorney general opinion is a non-binding interpretation of the law. However, a court will likely find an attorney general opinion to be persuasive when making a determination of the law.

Daily Fantasy Sports Are Considered Illegal Gambling Because Daily Fantasy Sports Involve an Element of Chance

DFS are considered illegal gambling under Texas law if a court would view participation in DFS as betting on the performance of a participant in a game. On the other hand, if a court would view participation in DFS as a contest of skill, then DFS would be legal under Texas law because no bet would have occurred. What separates a bet on a performance from a contest of skill? In Texas, if DFS involve even the slightest element of chance then a user of DFS is making a bet and not participating in a contest of skill.

Attorney General Paxton’s advisory opinion states, a court will likely find that DFS are considered illegal gambling because it is beyond dispute that DFS involve an element of chance regarding how a selected player will perform on game day. When selecting players for their team participants in DFS are taking a chance that the players they selected will not be injured or ejected, the weather conditions will not impact the players in an unsuspecting manner, or the referees won’t impact the outcome of the game. The advisory opinion concludes that these random circumstance amount to chance and do not involve skill on the part of the DFS participant thus a bet has been placed and DFS are considered illegal gambling.

Season Long Fantasy Sports May be Considered Illegal Gambling if the Host of the Contest Takes a Portion of the Winnings

Season long fantasy sports and DFS involve the same amount of chance. The random circumstances surrounding the players that a fantasy sports user selects does not change because a player is selected for an entire season or a single game day. The advisory opinion, however, states that Texas law contains an exception which allows people to engage in gambling if it occurs in a private place, no one received a cut of the prize pool other than personal winnings, and except for the advantage of skill or luck the risks of losing and the chances of winning are the same for all participants. Generally, season long fantasy sports fall into this exception.

If you are concerned with your participation in fantasy sports or the legality of your fantasy sports organization, please Contact Us.

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