DraftKings Online Gambling Illegal in Texas?

In an opinion issued yesterday (PDF file), Texas Attorney General Ken Paxton made it clear that he believes online sports gambling sites like DraftKings.com and FanDuel.com are illegal under state law. 

“Under Section 47.02 of the [Texas] Penal Code, a person commits an offense if 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. 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. Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling 'under Section 47.02 of the Penal Code.”

Limited Exception for Fantasy Sports Leagues

However, Paxton acknowledges an exception that permits fantasy sports leagues where the players split the pot but there is no “house” to take a cut of the action.

“Though participating in a traditional fantasy sports league is also illegal gambling under Section 47.02, participants in such leagues may avail themselves of a statutory defense to prosecution under Section 47.02(b) of the Penal Code when play is in a private place, no person receives any economic benefit other than personal winnings, and the risks of winning or losing are the same for all participants.”

As a Texas Internet Lawyer based in Dallas, I get asked by business clients about running Internet contests, online lotteries, and gambling online (including paid fantasy sports sites).

Attorney General Paxton’s opinion provides some clarity in Texas for online sports betting. Sara Castellanos points out in the Boston Business Journal that Massachusetts, Maryland, New York, and Nevada are all dealing with this issue too. See “Another setback for DraftKings — this time inTexas” (Jan. 20, 2016).

Clearly, this is an evolving niche with ecommerce. I expect Congress will weigh in at some point to provide uniformity via new federal Internet gambling legislation rather than have conflicting views based on the laws in each state.

Related Press Release: Texas Attorney General Paxton Releases Opinion on Daily Paid ‘Fantasy Sports’ Sites (Jan. 19, 2016)