Adding his voice to the voices of other state attorneys general around the country who have addressed the issue recently, Texas Attorney General Ken Paxton issued an opinion (No. KP-0057) on January 19, 2016, considering the legality of paid fantasy sports leagues such as DraftKings.com and FanDuel.com under state law – in this case, Texas state law. And, like the attorneys general in other states such as Nevada and New York, the Texas Attorney General concluded that such fantasy leagues likely constitute illegal gambling under state law.

In his Opinion, the Attorney General began by setting out the basic contours of Texas law concerning gambling. Article III, Section 47(a) of the Texas Constitution requires the Legislature to pass laws “prohibiting lotteries and gift enterprises” in the state, and, pursuant to that authority, the Legislature has prohibited a variety of gambling activities through Penal Code chapter 47. Under this chapter, a person commits a criminal offense when he or she “makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest.” A “bet” is defined as “an agreement to win or lose something of value solely or partially by chance,” but excludes “an offer of a prize, award, or compensation to the actual contestants in a bona fide contest for the determination of skill, speed, strength, or endurance or to the owners of animals, vehicles, watercraft, or aircraft entered in a contest.” Further, it is a defense to prosecution if, among other things, “no person received any economic benefit other than personal winnings.”

Turning to the question of the legality of paid fantasy sports leagues, the Attorney General framed the legal issue as “whether paid daily fantasy leagues constituting betting on the performance of a participant in a game (thus constituting illegal gambling) or instead are, in and of themselves, bona fide contests for the determination of skill (thus constituting no bet and no illegal gambling).” Applying the law described above, the Attorney General concluded (somewhat tongue-in-cheek, perhaps) that “odds are favorable that a court would conclude the participation in daily fantasy sports leagues is illegal gambling under Section 47.02 of the Penal Code.” In particular, he reasoned that:

• players’ payment of a fee to play constitutes “an agreement to win or lose something of value”;

• players win or lose partially based upon chance; and

• the “actual contestant” exclusion to the definition of a “bet” applies only to awards and compensation earned by a direct participant in the contest, not to someone who bets on its outcome.

• The Attorney General noted that despite the foregoing conclusion, private, season-long fantasy leagues may nevertheless be legal in Texas under the “social gambling” defense, which applies where: (1) the gambling occurred in a private place; (2) no person received any economic benefit other than personal winnings; and (3) except for the advantage of skill or luck, the risks of losing and the chances of winning are the same for all participants. Thus, where the house does not take a “rake,” such private leagues may be legal if the remaining requirements are satisfied.

The Attorney General concluded his Opinion by noting that “[i]t is within the province of the Legislature, and not this office or the courts, to weigh the competing policy concerns necessary to alter this framework to legalize paid daily sports fantasy leagues.” Indeed, it is entirely possible that the Legislature could take up the issue when it reconvenes in 2017. Last year, a Texas state representative filed two bills addressing fantasy sports leagues – one that would have required the licensing and regulation of “sports betting websites” (HB 4040), and one that would have criminalized using or running a “sports betting website” in Texas (HB 4019). Neither proposal made it to a committee hearing, which is not entirely surprising given the Legislature’s historical reluctance to carve out exceptions to Texas’s general gambling prohibition. However, despite the failure of these proposals to move forward, the enormous popularity of online fantasy sports leagues may be enough to persuade the Legislature to take up the issue in the future.