AUSTIN (CN) - Fantasy sports website FanDuel on Friday agreed to stop accepting paid entries for cash prizes in Texas, two months after the state attorney general called it illegal gambling.
FanDuel will stop accepting paid entries on May 2, but can continue operating free games in the state under its settlement with Attorney General Ken Paxton's office. In exchange, Paxton agreed not to file any legal action."I commend FanDuel for responsibly and proactively working with us to reach this settlement," Paxton said in a statement. "This will spare both the company and the taxpayers of Texas the expense of an extensive lawsuit that I believe would only affirm what my office has already determined."
In his nonbinding advisory opinion on Jan. 19, Paxton said such betting is illegal because the house takes a cut. New York and Illinois had reached similar conclusions.
"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," Paxton wrote. "Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling under section 47.02 of the Penal Code."
Paxton concluded paid daily fantasy sports operators incorrectly claim the actual-contestant exception under state law, which applies to contestants in an actual skill or sporting event.
"Paid daily 'fantasy sports' operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law," Paxton said at the time. "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."
Paxton said Friday that Texas law requires only "partial chance" for something to be gambling - it does not require that chance predominate, as in some other states.
"Traditional fantasy sports leagues that are not operated by a third party for revenue are, as a general rule, legal under Texas law," he said. "In those leagues, participants generally split any pot amongst themselves, so there is no house that takes a cut."
Dallas Mavericks owner Mark Cuban, an investor in fantasy sports, blasted Paxton for his opinion the day after Paxton issued the letter in January. Cuban called fantasy sports "a game of skill ," not gambling.
"I can walk into any poker room in the world against the best poker players and if I pull a straight flush, as long as I know what a straight flush is, I am going to win," Cuban said on Jan. 20. "That does not happen in daily fantasy sports. You have to be smart, you have to put in the time."
Cuban compared daily fantasy sports to stock investing, saying, "there is a lot more luck involved" in stocks.
"Why is the stock market acting like it is? Nobody knows," he said. "Where should you invest your money in the stock market? I have talked to some of the smartest people and nobody knows. That sounds like a game of chance to me."
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