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New documents obtained by PlayUSA via a freedom of information request show exactly how and why FanDuel has reentered Texas for daily fantasy sports, against the recommendation of the state’s attorney general office.
One of the documents, a letter from one of the state’s assistant attorney generals, stated that “the State does not agree that you may engage in fantasy sports gambling.”
“We look forward to either the courts or the Texas Legislature conclusively deciding the legality of paid daily fantasy sports,” Marc Rylander, director of communications for the AG’s office, told PlayUSA in a statement.
Also revealed in the documents is the fact that FanDuel has joined litigation alongside DraftKings in trying to determine the status of daily fantasy sports in Texas.
The backstory on FanDuel and Texas
Two years after closing up shop in one of the key daily fantasy sports markets, FanDuel is back in business in Texas.
The company resumed paid-entry contests last month, pushing back against a standing attorney general opinion. The exchanges that led to FanDuel’s decision reveal the extent to which the issue still lingers in legal limbo in the Lone Star State.
The documents make for an interesting read, and it seems sensible to just walk through the situation from the beginning.
January 2016: Attorney General says DFS is gambling
Late in 2015, Rep. Myra Crownover asked Attorney General Ken Paxton to review the legality of fantasy sports under Texas law.
Crownover specifically questioned FanDuel and DraftKings, who were facing some legal pressure in New York and Nevada. They were also reaching the peak of their national advertising blitz around that time.
The AG returned his opinion at the start of the new year, and it was not favorable to operators.
The crux of Paxton’s opinion is that DFS constitutes illegal betting in Texas. State law prohibits playing any game of chance for a prize, whether or not an element of skill is present. Participants of physical contests are exempt, but third parties speculating on the results of those contests are not.
Paxton offered this 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.
DraftKings and FanDuel had tried to argue that skill was so predominant in DFS as to render chance moot. Paxton cited their premise and dismissed it.
That decision was pretty much the end for FanDuel in Texas.
March 2016: FanDuel and DraftKings go their own ways
Although Paxton did not clearly direct operators to exit the state, FanDuel decided to take its ball and go home.
In March, the company informed its Texas customers that it could no longer let them play paid-entry contests. FanDuel had struck a deal with the AG, allowing it to exit the market prior to May 1 without penalty. As part of the settlement, the two parties agreed not to litigate the matter further.
PlayUSA believes this is the first time this settlement has been published publicly.2016.03.04 - TXAG FanDuel Settlement Agreement Signed
FanDuel met its deadline to exit, but its main competitor took the opposite tack. DraftKings released a statement saying it would continue to serve Texas and promptly filed suit against Paxton.
While the matter has lingered in court, defiant DraftKings has continued to operate in the state — even hosting a live event in San Antonio.
August 16: FanDuel knocks at Paxton’s door
After a two-year ceasefire, shells started flying again last month. FanDuel mailed a letter to the Texas AG’s office, providing seven days’ notice of its intentions to re-enter the market.
The newly formed FanDuel Group called the decision a “business necessity,” citing DraftKings’ tightening grip on the industry after standing its ground in Texas. According to FanDuel, the state represented seven percent of its business in 2015, and it faced a “material market disadvantage” by complying.
FanDuel’s disadvantage in Texas has had a sizable negative impact on its overall business, and its largest competitor has benefited directly from taking a different path. The disparity in Texas operations that has contributed significantly to the shift in market share has negatively impacted FanDuel’s valuation and impeded its ability to raise capital. Given these factors, FanDuel feels compelled by market pressure to re-enter the Texas market.
To try to smooth things over, FanDuel is self-imposing additional restrictions on its Texas business. It will not market directly to its residents, nor will it make any representation that DFS is considered lawful in the state.
August 23: Paxton responds, FanDuel intervenes
Paxton’s office responded to FanDuel’s letter a week after receipt. The reply came from Deputy First Assistant Attorney General Brantley Starr, and it did not mince words.
Here it is in full:
We received your letter dated August 16, 2018. The State does not agree that you may engage in fantasy sports gambling. The legality of that matter is at issue with another party in a lawsuit pending in Travis County [citation]. We would not object to you joining that lawsuit. Otherwise, the State may pursue appropriate legal actions against you.
“Another party” is DraftKings, and FanDuel immediately heeded Starr’s advice. Although it agreed not to take the state to court, the company formally intervened in DraftKings’ case. Both companies are now listed as plaintiffs in the civil suit.
You can see that filing here:FanDuel Intervention - Final
Prior to filing, FanDuel reopened its platform to customers in Texas. It has not promoted the re-entry under its self-imposed silence, but it did offer a brief statement to PlayUSA:
Considering a variety of factors related to the operation of daily fantasy sports in Texas, we have re-entered the market while the issue is being resolved by the state.
With operators and state officials locked in a stalemate, it looks like the courts may ultimately decide the fate of Texas DFS.