FanDuel to Exit Texas Market
In January, Texas Attorney General Ken Paxton ruled that daily fantasy sports (DFS) are illegal under current Texas state law. His opinion, which stuck strictly to a reasonable interpretation of the law, was given in response to questions asked of him by Texas State Representative Myra Crownover, Chair of the Committee on Public Health, who wanted to know whether DFS was legal and whether fantasy sports in general are legal if no fee or rake are taken from the prize pool.
The two leading DFS sites, DraftKings and FanDuel, at whom most of these AG rulings are targeted, responded by arguing, as usual, that DFS is a game of skill and is therefore legal. DraftKings went so far as to say, “The Attorney General’s prediction is predicated on a fundamental misunderstanding of DFS.”
While both sites always say they will fight the various Attorney General rulings, FanDuel made the decision last week to step away from Texas so as to avoid legal trouble. That does not mean the company will stop fighting for DFS, but for now, at least, it is conceding the present battle. In an e-mail to its Texas customers, FanDuel wrote, in part (emphasis ours):
We have some important news to share regarding our contests for users in Texas. As you may know, fantasy sports was founded in Texas more than four decades ago. In 2009, FanDuel was formed at Austin’s SXSW Interactive Festival, paving the way for millions of sports fans to play fantasy in a whole new way. We are proud of the business we’ve built and our ability to innovate fantasy sports and create a new product that fans love.
We believe FanDuel has always been legal in Texas and strongly disagree with the recent advisory opinion of the Attorney General, but understand that the laws surrounding fantasy sports require clarity. As such, we have worked with the Texas Attorney General to map out our plan to wind down our operations in Texas, suspending paid contests on May 1st. The Texas legislature will be in session in 2017 and we will work to pass legislation that protects fantasy sports and consumers so that we can bring our paid contests back to Texans as soon as possible.
Until FanDuel officially leaves the Texas market, the company says, customers can still participate in free contests if they would like and can withdraw their funds at any time. Players can still keep their money in their FanDuel accounts, as well, and play from other states in which FanDuel is still operating, probably a decent option for those who travel frequently for work.
The Texas Attorney General’s Office issued a press release Friday, announcing that it has agreed to not take any sort of legal action against FanDuel in exchange for FanDuel for ceasing paid contests on May 2nd (we’re not going to quibble over the slight date discrepancy).
Attorney General Paxton also said, “I commend FanDuel for responsibly and pro-actively working with us to reach this settlement. This will spare both the company and the taxpayers of Texas the expense of an extensive lawsuit that I believe would only affirm what my office has already determined.”
The statement also summarizes what Paxton said in his January ruling in answering the questions from Myra Crownover:
Unlike some other states, Texas law only requires “partial chance” for something to be gambling; it does not require that chance predominate. Traditional fantasy sports leagues that are not operated by a third party for revenue are, as a general rule, legal under Texas law. In those leagues, participants generally split any pot amongst themselves, so there is no house that takes a cut.
In his earlier opinion, Paxton also debunked the “actual contestants” argument that the DFS companies make, in which they try to argue that the DFS contestants are the “actual contestants” in the games, rather than the real-life athletes:
For example, if a person plays in a golf tournament for an opportunity to win a prize, he or she is within the actual contestant exclusion to the definition of betting. If instead the person does not play in that tournament but wagers on the performance of an actual contestant, he or she is gambling under Texas law. To read the actual-contestant exception as some suggest would have that exception swallow the rule.
FanDuel withdrew from Mississippi and Hawaii during the last couple months and has been out of Nevada. It appears there could be an opportunity to get back into Nevada, as the state didn’t say DFS is illegal, but rather that it is gambling and therefore operators need a license, which FanDuel does not have. Acquiring that license could take quite some time. Once FanDuel leaves Texas, a major market, it will still be in 41 states.