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Texas AG: Daily Fantasy Is Illegal Gambling

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By Christopher Coble, Esq. on January 20, 2016 2:59 PM

Another day, another state outlawing daily fantasy gambling. This time it was Texas attorney general Ken Paxton, saying that DraftKings and FanDuel were taking bets in violation of state gambling laws.

As opposed to his counterpart in New York, Paxton hasn't threatened criminal action or demanded his constituents' money back. This was an advisory opinion on what the Texas courts might rule if they ever took up the issue. But Texas is the eighth state to come out against daily fantasy sites and one of the biggest daily fantasy markets, so how long will daily fantasy remain unregulated?

Starting Lineup

At first, daily fantasy sites like DraftKings and FanDuel claim a federal exemption to gambling laws under the Unlawful Internet Gambling Enforcement Act (UIGEA), which allows online wagering in contests that have "an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events."

But states are free to define and regulate gambling and gaming under their own laws. And AG Paxton said, at least under Texas law, that dog just won't hunt:

"Paid daily 'fantasy sports' operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law. 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."

Arguments Off the Bench

In response, daily fantasy sites have contended they are games of skill, not chance. Via Deadspin, their counterarguments all sound very similar:

  • DraftKings: "The Texas Legislature has expressly authorized games of skill, and daily fantasy sports are a game of skill."
  • FanDuel: "Fantasy sports has always been a legal contest of skill in Texas."

For any person without skin in the daily fantasy game, the skill/chance distinction between wagering on fantasy football and, say, poker is nearly nonexistent. Soon, the differences in regulation between the two will likely disappear as well.

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