FanDuel Settles Texas Daily Fantasy Sports Case

March 11, 2016
Fantasy Sports

The daily fantasy sports industry has seen a ton of negative attention over the past four to six months, and they seem to be taking shots left, right and center. This was definitely the case when they received a January opinion from Texas Attorney General Ken Paxton that stated he believed daily fantasy sports were illegal under state law. Under that ruling, the state could have went after companies like industry juggernaut FanDuel, but a recent settlement has avoided these types of charges and court actions for now.

Details of the Settlement

The settlement that FanDuel and the state of Texas have come to boils down to two main terms. For the DFS giant, they will be able to continue offering real money daily fantasy sports events until May 2. On the flip side of that, the Attorney General’s office has agreed to not go after FanDuel for running their games in the state at any point. They’ll still be allowed to run free money games, but real money play is out the window until some sort of legislation passes that gives the games a regulatory framework to work within.

This is something that definitely could have went better for FanDuel, but it also could have went much worse.

Why is Daily Fantasy Sports Illegal in Texas?

The specific laws regarding gambling in the US vary wildly from state to state, and a lot of it comes down to how each individual state has decided to legally define gambling. In the vast majority of states, contests based on pure skill are completely legal, and this is how you’re able to have entry fees and prize funds for competitions like chess tournaments, which virtually everyone will agree is a contest based on skill. Also as you can ascertain in our State gambling directory, the majority of states where games that are completely based on chance are ruled to be gambling. This makes sense, and it covers games like roulette or craps.

However, there are a lot of gray areas in between those two extremes, and a lot of what differentiates one state’s gambling laws from another are where they draw the line regarding how much chance and skill are required for a game to be considered gambling or not.

In the state of Texas, games with even a small amount of chance are considered gambling. This is why the typical daily fantasy sports argument of their games being based primarily on skill are irrelevant in this particular state. Even if a majority of the outcome is based on skill, that’s not enough to be legal there.

DFS Companies Pull Back the Reins

There’s a major problem with daily fantasy sports companies that we’re seeing right now that’s virtually killed the majority of the momentum they were able to generate in 2015. After the industry bragged of their huge, exclusive advertising deal with ESPN, they had the same deal pulled just last month after seeing a cascade of negative attention from the media over the opinions of Attorneys General like the ones from Texas and New York.

They’ve also had several states clarify otherwise that daily fantasy sports are illegal inside of their borders, and although some states have decided to work on getting a regulated DFS environment created, the damage is largely done at this point.

What looked like it could be the second coming of the popularity we saw we online poker between 2003 and 2006 has been quickly shot down, and now industry investors are scraping to salvage some level of profitability. Deposit bonuses have been scaled down or completely eliminated, fewer big events are running and advertising spending has been squashed almost completely all due to the Fantasy sports industry coming under legal fire.

The investors behind the biggest names in the daily fantasy sports industry are pulling back the reins to try to steer these companies into the green, but it seems like every week has more bad news for the industry. We’re eager to see if they’re able to turn it around.