Texas Attorney General Offers Opinion Stating Daily Fantasy Sports Is Illegal in the State
The Texas Attorney General, Ken Paxton, has written an opinion which states that daily fantasy sports is illegal in the state. Paxton wrote in his legal opinion DFS sites like FanDuel and DraftKings are operating illegally within the state of Texas.
Texas gaming laws prohibit wagers which “hinge on the partial or final result of a game or contest”. The laws also prohibit bets on the individual performance of players in those games or contests. Daily fantasy sports sites allow competitors to field teams of individual players from major sports contests, whose onfield stats are converted to points. Though DraftKings and FanDuel say their contests are gaming and not strict gambling — and therefore are legal — Ken Paxton disagrees.
Arguments Do Not “Square with Texas Law”
In his opinion, Ken Paxton said in his opinion, “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.”
The Texas AG said that traditional fantasy sports contests, called variously yearly fantasy sports or “local leagues”, is legal under Texas law. The distinction is a good one for those concerned their local fantasy football league draft might be raided, but also seems contradictory. In their response to Paxton’s opinion, the DFS companies suggested these various interpretations would be clarified in the court system.
DraftKings Plans to Defy Opinion
Randy Mastro, a DraftKings lawyer, gave a statement on Ken Paxton’s legal opinion. Mastro said, “We strongly disagree with the attorney general’s prediction about what the courts may or may not do if ever presented with the issue of whether daily fantasy sports are legal under Texas law.”
Mastro also signaled DraftKings would defy Ken Paxton’s office, though it is uncertain whether Paxton’s opinion signals an intention to enforce the law. No word has leaked that the attorney general has ordered law enforcement to enforce his ruling.
Randy Mastro was clear about his company’s intentions when he said, “We intend to continue to operate openly and transparently in Texas, so that the millions of Texans who are fantasy sports fans can continue to enjoy the contests they love.”
Loss of 5% of Revenues
Texas is the third large state to declare daily fantasy sports illegal. The attorney generals of New York and Illinois said DFS is illegal in their states. Eric Schneiderman claims all fantasy sports are illegal in New York and attached punitive actions to his lawsuit against DraftKings and FanDuel which would cost them $4 billion, if applied. Lisa Madigan of Illinois was a bit less confrontational, but wanted to force Illinois lawmakers to clarify the state’s fantasy sports laws.
The loss of the three states’ revenues would be a tremendous blow for the US-based DFS operators, costing them roughly 25% of their revenue stream, according to Eilers Research. Texas represents about 5% of the daily fantasy sports revenues the companies collect.
In an era where states are banning DFS gaming, the Texas government’s reaction is no real surprise. Though Texas gamblers have fueled the growth of the brick-and-mortar casino industries of Oklahoma and Louisiana, Texas bans most forms of land-based gambling, except horse racing and lottery sales.
Ken Paxton Indicted on Felony Charges
Ken Paxton is no stranger to controversy. The embattled attorney general of Texas is facing felony charges himself, after a Texas grand jury voted on July 28, 2015 to indict Paxton of felony charges of “securities fraud” and “failing to properly register” with the Texas state securities board. Paxton was arrested and booked on August 3, 2015 and released on $35,000 bail. He faces charges which carries a total sentence of 5 to 99 years, if convicted.
Paxton is alleged to have sold over $100,000 of common stock of Servergy Inc. to both 79-year old businessman Joel Hochberg and State Rep. Byron Cook (R-Corsicana), without revealing he would be compensated by the company for the transfer. He later rendered the services of a financial adviser without being certified, which is a felony. Ken Paxton also admitted to a third charge in civil court.
Texas Republicans Silent on Ken Paxton Case
Most members of the Republican Party of Texas have not spoken out on Paxton’s behalf, though its chairman, Aaron Whitehead, said the arrest was an “outrageous event” and blamed the indictment on a “sloppy process”. The investigation was conducted by two Texas Rangers and two Houston area prosecutors, so it is not seen by most as a partisan action. Coming on the heels of former Gov. Rick Perry’s indictment and arrests, most GOP members do not appear willing to stand behind someone accused of such blatant crimes.
Zen Biasco, a Texas Democrat, joined protests at Paxton’s arrests and later called for Paxton’s resignation. Biasco said, “It’s just the politics down here. First we have a governor indicted. It’s just too much. It’s an embarrassment.”
That is not likely to happen. Texas is solidly in the Republican Party’s control. No Democrat has been elected to statewide office in more than 2 decades. The elected officials are therefore immune to the need for recalls and resignations. Ken Paxton’s case will go to trial. Meanwhile, Paxton has the authority to ban daily fantasy sports with the stroke of a pen.
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