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Texas A.G. Says Fantasy |Sites Are Gambling

AUSTIN (CN) - Texas Attorney General Ken Paxton has concluded that participation in paid daily fantasy sports websites is illegal gambling under state law, mirroring similar conclusions in New York and Illinois.

In a non-binding advisory opinion issued Tuesday, Paxton said such betting is illegal due to a cut the house receives.

"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's 9-page opinion states. "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 says paid daily fantasy sports operators incorrectly claim the actual-contestant exception under state law, which applies only 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 in a statement. "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."

Texas law only requires "partial chance" for something to be gambling - it does not require that chance predominate unlike in other states, Paxton added.

Paid daily fantasy sports website operator DraftKings quickly disagreed with Paxton's opinion, arguing the Texas Legislature has "expressly authorized games of skill" and that daily fantasy sports are a game of skill.

"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," DraftKings attorney Randy Mastro, with Gibson Dunn in New York, said. "The Attorney General's prediction is predicated on a fundamental misunderstanding of DFS. 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."

Paxton acknowledged that Texas courts have yet to address the actual-contestant exclusion from the definition of "bet," but he relied on an earlier advisory opinion from his office in 1994.

"We noted that the Practice Commentary to the statute indicated the actual-contestant exclusion 'is intended to exclude only awards and compensation earned by direct participation in the contest - the pole-vaulter's cup, the pro football player's salary - not the receipt of a wager made on its outcome,'" the opinion states. "We concluded that, although the 'exclusion may embrace and athletes actually competing in the sporting events you refer to, it does not embrace those who pay entry fees for a change to win a prize from forecasting the outcomes of the events.'"

Paxton drew a distinction with traditional fantasy sports leagues, concluding they are legal under Texas law because participants split the pot amongst themselves rather than giving the house a cut.

Paxton's opinion comes one month after Illinois Attorney General Lisa Madigan concluded paid daily fantasy sports betting is illegal in her state, as well. DraftKings sued her office within days in Cook County Chancery Court, seeking declaratory judgment for violation of its due process rights.

FanDuel and Head2Head filed a similar lawsuit in Sangamon County Chancery Court.

Paxton's opinion comes two months after New York Attorney General Eric Schneiderman sent a cease-and-desist letter to FanDuel and DraftKings, warning them to stop operating in his state. Schneiderman persuaded a Manhattan Supreme Court judge to bar both websites from taking bets in the state last month, but allowed them to appeal his injunction before it takes effect.

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