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FanDuel is back in business in Texas. The daily fantasy sports (DFS) operator left the market to its main competitor DraftKings in May 2016. Now it has returned and Texan players can again make their picks and manage their teams at the FanDuel site.
Since FanDuel’s Texas daily fantasy sports news broke, the Twittersphere has resonated with positive responses:
The legal daily fantasy sports landscape has changed
FanDuel decided to leave the daily fantasy sports market in Texas after the Attorney General Ken Paxton issued his opinion that offering DFS contest constituted gambling under state law.
He said in 2016:
“Under section 47.02 of the Penal Code, a person commits an offense if he or she 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. Because the outcome of games in daily fantasy sports leagues depends partially on chance, an individual’s payment of a fee to participate in such activities is a bet. Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling ‘under section 47.02 of the Penal Code.”
FanDuel struck a deal with the AG and exited the market. In a message to all its players, FanDuel expressed the hope that they would be back:
“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.”
Getting in on the legalities of Texas daily fantasy sports
Legislative attempts were made with House Bill 1457 and Senate Bill 1970. Key bill sponsors included State Sen. Lois Kolkhorst and Representative Richard Peña Raymond.
Kolkhorst referred to DFS as a game of skill when filing his bill:
“We must protect our liberties and rights, and that includes our ability to play a game of skill that millions of Texans already enjoy. Fantasy sports add to the experience of watching your favorite team, and I’m excited to work with my fellow lawmakers and the sports fans all across Texas to pass this legislation.”
As Texas DFS players know, the bills failed to get the support they needed, and as of 2018 there is no new legislation on the table.
So how come FanDuel has changed its mind and re-opened in Texas?
DraftKings insisted that DFS is a game of skill
Lots of states have similar provisions to Texas when it comes to gambling. Generally, games of skill are exempt. Games predominately governed by chance are classified as gambling and illegal unless specifically regulated.
DraftKings took the exact opposite direction to FanDuel and launched a challenge to the AG’s interpretation of the law based on the contention that DFS is a game of skill.
In their legal complaint, DraftKings states:
“All fantasy sports, including those offered by DraftKings, are contests of skill. The contestants in fantasy contests act as general managers of their fantasy teams, and in that role, they have to use their skill, knowledge of the sport and athletes—and master complex econometric and statistical concepts—to select their fantasy rosters of realworld athletes under a salary cap and other rules applicable to these fantasy sports.”
Adding external expert evidence, DraftKings noted:
“That DFS games are contests of skill is now beyond credible dispute. To DraftKings’ knowledge, every statistical and economic expert who has studied DFS games has concluded that their outcomes turn on skill, not chance. Indeed, one leading University of Chicago statistician put it more bluntly, calling chance “overwhelmingly immaterial” to the outcome of DFS contests.”
Meanwhile, it is notable that Texas has not launched any prosecutions either of players or DraftKings.
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Other states took other solutions
FanDuel has looked at what’s happened in other states with similar laws about the definition of gambling. In many of these, online gambling and DFS have now been specifically legalized and regulated.
While not absolute proof by any means, the act of passing legislation in itself implies a need to make the definition clear as to whether DFS is permitted or not under state gambling laws clear.
Currently both FanDuel and DraftKings block players from:
• Arizona
• Alabama
• Hawaii
• Idaho
• Iowa
• Louisiana
• Montana
• Nevada
• Washington state
The list of blocked states evidences the fact that DraftKings and FanDuel are not insensitive to the law. Where DFS is clearly illegal, they don’t break the law.
Within the few states where both companies are active and where DFS has not been specifically legalized, there is generally a sound, or at least strongly arguable legal basis for the contention that DFS is legal.
The attorney general has taken the opposite view from Ken Paxton and issued an opinion based on their own state’s law that DFS is legal, in some cases.
In Kansas, Massachusetts, Rhode Island and West Virginia, the AGs have explicitly recognized that DFS is legal.
In South Dakota and Ohio the AG has recognized that DFS exists in a gray area — which means the states aren’t going to prosecute and would prefer the politicians sorted it out.
Legalized sports betting changes the game
FanDuel has recently been bought by Paddy Power Betfair (PPB), a huge global gaming group.
That is significant because decisions on risking legal actions in US states could now affect the whole group, not just FanDuel. With the gradual spread of state-regulated sports betting, nobody wants to be tagged as a “bad actor” and find themselves excluded from the market, especially not a company like PPB.
PPB is launching its US sports betting operations under the FanDuel brand, precisely because it has such strong brand recognition in so many states.
In fact, the industry sees a real possibility that the spread of regulated sports betting will sound the death knell for mass market DFS as players switch to betting directly on sports.
FanDuel’s Texas presence means that it will have a ready-made customer base when finally allowed to offer state sports betting.
OK, Texas may not be high on the list of states about to introduce sports betting. We will see how it plays out, but even Texas will probably get there in the end.
