In spite of an air of finality in his opinion, Attorney General Ken Paxton did little to clarify the vague laws governing daily fantasy sports in Texas.
Paxton’s opinion that a “court would likely determine that participation in daily fantasy sports leagues is illegal gambling” will almost certainly crimp business in Texas for fantasy sports industry leaders like DraftKings and FanDuel, business attorney James Ray says.
The opinion does not, however, help prosecutors and judges better understand if fantasy sports is an illegal game of chance or a bona fide contest of skill, says Ray, a business litigator with Munsch Hardt Kopf & Harr in Dallas.
“I think Texans deserve a better definition of the law,” Ray says. “The entire opinion is based on the premise that skill is irrelevant. Texas law is vague and deliberately so. The Legislature’s absence of a definition is to allow for prosecutorial discretion.”
And it allows politicians to sidestep the clash between conservative values that decry gambling and a code of individualism that abhors government interference in private matters.
Section 47.02 of the Texas Penal Code is very specific that betting on a game or the performance of someone participating in a game is illegal. There is nothing to prohibit someone to be paid or win prizes for participating in contests of skill.
There is very little legal opinion in Texas with which to draw the line. Fantasy sports was little discussed before Congress passed the Unlawful Internet Gambling Enforcement Act in 2006.
That act made banking transactions with online gambling sites illegal, but gave an exclusion to fantasy sports because it takes an element of skill to play it.
The balance of skill and chance might have been a question only for players but for the exploding popularity followed by carpet-bombing television advertising campaigns by the two biggest fantasy sports companies, FanDuel and DraftKings.
Barraged by testimonials of fist-pumping, player jersey-wearing young men brandishing desk-sized million dollar checks, the public in October learned of a leak of player information by an employee of DraftKings who had won $350,000 on the rival FanDuel site.
Before the end of the year attorneys general in New York, Illinois and Nevada branded fantasy sports companies illegal gambling outfits and called for wholesale regulation of the industry. (Watchdog has written extensively on those regulation efforts here.)
Sensing the pressure building, Ray in June posted his own opinion along with some speculation about fantasy sports on the Dallas Bar Association website. Ray identified the question Paxton would be asked, but allowed that skill plays an important, even central, role in fantasy sports success.
His authority on the matter is informed by the flogging he takes in a fantasy football league from old law school friends who spend much more time than he does analyzing the vast trove of player and team data available because of the Internet.
“It’s a skill, a skill I might lack, but still a skill,” Ray says. “I think his (Paxton’s) opinion was a missed opportunity for a discussion of the research and analytics necessary to be successful at daily fantasy sports.”
FanDuel and DraftKings spent heavily on television and radio ads in Texas asking Paxton for a favorable opinion and bluntly suggesting the state mind its own business when it comes to fantasy players.
“A well-funded publicity campaign,” Paxton responded in a press release before Christmas, “makes for good headlines. But the question in any attorney general opinion is how a court would rule on existing law. A publicity campaign cannot and should not influence that objective inquiry.”
When Paxton issued his opinion, FanDuel’s attorney John Kiernan, criticized the attorney general’s failure to address the skill issue. DraftKings’ lawyer, Randy Mastro, said in a statement the company intended to “continue to operate openly and transparently in Texas.”
Peter Schoenke, chairman of the Fantasy Sports Trade Association, issued the harshest rebuke.
“Paxton’s deliberate misinterpretation of existing Texas law represents the type of governmental overreach that he himself professes to reject,” Schoenke wrote in a prepared statement.
Gaming analysts have reported fantasy sports revenues taking a hit with all of the regulatory talk and lawsuits filed in New York and Illinois to block such regulation.
Texas, the fifth biggest fantasy sport revenue generating state, will feel a chill because Paxton’s opinion, while nonbinding and not law, will occupy the vacuum created by the absence of true legal opinion, Ray says.
No one, he says, wants to volunteer to be prosecuted to test Paxton’s opinion.
Paxton and the Legislature will have to deal with public opinion. Last week, Mark Cuban, owner of the Dallas Mavericks, spoke of a bright future he has invested in before a Fantasy Sports Trade Association conference in Dallas.
Cuban called the politicians who want to regulate fantasy sports hypocritical, but gave Paxton credit for issuing an opinion without going after the companies doing business in the state.
He told those at the conference to step up to defend their industry.
“You’re in a great position,” Cuban told the group, according to the Dallas Morning News. “That’s why I’ve invested in the industry. That’s why I think the (future of the) industry is bright. I think gambling as a whole will be made legal. Hypocrisy tends to figure itself out.”
Cuban is being unrealistic about the prospects of all gambling being made legal in Texas, Ray said. The attorney said he isn’t optimistic the Legislature will move to offer more clarity in gambling laws.
But while Paxton’s opinion signals to prosecutors they have the authority to test the legality of fantasy sports, Ray says he thinks it unlikely prosecutors will suddenly act on that authority.
As long as fantasy sports is a contest of a skill done in “good faith; honestly, openly, and sincerely; without deceit or fraud,” Ray says prosecutors will find more important legal matters to attend to.
“I do have confidence prosecutors will seek justice, as is their duty,” he says. “If something is deceitful and fraudulent, I don’t doubt they’ll act. Will there be an influx of fantasy sports cases in the courts based on this opinion? Probably not.”