Is the Daily Fantasy Sports Showdown in Texas Just for Show?

By: Ifrah Law

It’s a showdown in Texas over the legality of daily fantasy sports (“DFS”) contests under Texas law. But it’s a showdown only for show, it seems.

The drama over the legality of DFS in Texas began on January 19, 2016, when Texas Attorney General Ken Paxton unilaterally issued an opinion letter declaring fantasy sports illegal within the state. The fallout from this opinion was swift. On March 4, 2016, Attorney General Paxton and FanDuel entered into an agreement requiring FanDuel to effectively exit the Texas DFS market by May 2, 2016. The agreement forced FanDuel out of one of the larger states for DFS, though FanDuel continued to operate in 41 states after the May deadline.

DraftKings, on the other hand, did not take the matter lying down. Instead, DraftKings filed suit on March 4, 2016, against Attorney General Paxton, seeking from a Texas state court a finding that DFS contests are legal under Texas law. All the while, DraftKings has continued to operate in Texas.

Eager not to cede any territory to DraftKings in the platforms’ ongoing competition, FanDuel first intervened in DraftKings’ lawsuit and then it returned to the Texas marketplace. On August 16, 2018, FanDuel issued a letter to the Texas Attorney General’s office in which it stated its intentions to re-enter the market based on a “business necessity”:

FanDuel’s disadvantage in Texas has had a sizable negative impact on its overall business, and its largest competitor has benefited directly from taking a different path. The disparity in Texas operations that has contributed significantly to the shift in market share has negatively impacted FanDuel’s valuation and impeded its ability to raise capital. Given these factors, FanDuel feels compelled by market pressure to re-enter the Texas market.

In an effort to assuage the Texas Attorney General’s fears about FanDuel’s re-entry into Texas, FanDuel stated in its letter that it would not market directly to Texas residents or represent that DFS is considered lawful in the state.

The Texas Attorney General’s Office’s response was swift. On August 23, 2018, Deputy First Assistant Attorney General Brantley Starr responded as follows:

We received your letter dated August 16, 2018. The State does not agree that you may engage in fantasy sports gambling. The legality of that matter is at issue with another party in a lawsuit pending in Travis County [citation]. We would not object to you joining that lawsuit. Otherwise, the State may pursue appropriate legal actions against you.

Commenting on these developments, the director of communications for the Texas Attorney General’s office said, “We look forward to either the courts or the Texas Legislature conclusively deciding the legality of paid daily fantasy sports.” A public information request to the Texas Attorney General’s Office did not yield much in terms of further insights, though it did garner a communication from the Texas Attorney General stating that it did not oppose FanDuel’s intervention in DraftKings’ suit.

Some believe that FanDuel’s return to the Texas market previews future competition between FanDuel and DraftKings in what would amount to a huge marketplace for sports betting. Whether that prediction comes to fruition turns in part on how the state handles the legality of DFS contests.

Practically speaking, there is no way FanDuel would re-enter the Texas market and face the risk that the Texas Attorney General would come after it without good reason to believe it would be safe in doing so. Thus, despite the threatening language from the Texas Attorney General, we believe that he is satisfied that any lingering consumer protection issues are now resolved and that the legality of DFS under Texas law can wait for another day. Or perhaps for another Attorney General.