Attorney General Paxton opinion on legality of Fantasy Sports Websites in Texas
On January 19, 2016, the Attorney General of Texas, Ken Paxton, released an opinion regarding the legality of fantasy sports leagues. The quick takeaway is that the activities of a fantasy sports league that takes a cut, by requiring participants to pay a fee that is retained by the organizer of the fantasy sports league instead of being paid out wholly to participants, constitute illegal gambling under Texas law. This holds true for sites daily paid fantasy sports leagues such as DraftKings.com and FanDuel.com.
The opinion distinguishes those activities of daily sports leagues from activities that are typical of season-long leagues where the organizer does not take a fee out of the overall pot and none of the participants get a cut of the amount wagered, instead they only get their personal winnings.
The opinion was issued in response to two questions:
- Whether fantasy sports leagues such as DraftKings.com and FanDuel.com are permissible under Texas law; and
- Whether it is legal to participate in fantasy sports leagues where the house does not take a “rake” and the participants only wage amongst themselves.
The answer to the first question: No. Gambling through these sites such as these, which are usually daily fantasy leagues, is considered illegal activity under Texas law. The reasoning is that sites such as DraftKings.com and FanDuel.com have structures in which participants must pay fees, thus the site itself derives an economic benefit “other than personal winnings.” This is an illegal gambling activity under Texas law.
The answer to the second question: It depends. In regards to leagues where there is no “rake” and the participants wager amongst themselves, betting is considered legal activity if it occurs in a private place and the risks of winning or losing are the same for all participants.
The opinion differentiates between traditional fantasy sports leagues and paid daily sports leagues noting that daily paid fantasy sports leagues will likely be considered illegal gambling, while traditional fantasy sports leagues—under most circumstances—will not be considered illegal gambling. The opinion states: “odds are favorable that a court would conclude that participation in paid daily fantasy sports leagues constitutes illegal gambling, but that participation in traditional fantasy sport leagues that occur in a private place where no person receives any economic benefit other than personal winnings and the risks of winning or losing are the same for all participants does not involve illegal gambling.”
In Texas a person commits the offense of gambling if the person makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest. A bet is an agreement to win or lose something of value solely for partially by chance. It specifically excludes an offer or a prize or award 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. It is also a defense to prosecution if no person received any economic benefit other than personal winnings.
Partial or Final Result
Under Texas law, if there is an element of chance involved in a particular game, it will fall under the definition of a “bet” and will be considered illegal.
Performance of a Participant Exclusion does not Apply
Furthermore, participants of fantasy sports leagues are not the actual participants of the game, rather they are betting based on the performance of professional sports players, thus making these bets illegal.
Exclusions: Not a Bet
There are two circumstances in which a bet does not make the activity illegal. First, an offer or prize or award to the actual contestants in a bona fide contest for a determination of skill, speed, strength, or endurance is legal activity. Second, owners of animals, vehicles, watercrafts, or aircrafts entered into a contest who bet on their property are not considered as engaging in illegal activity.