Apr 23, 2017

Texas Lawmakers Debate Luck and the Legality of Fantasy Sports

Reporting Texas

DeAndre Hopkins sprints down the field for a 60-yard touchdown reception. The Houston Texans win – and so do you.

Was your fantasy football success a matter of luck or skill? Or some combination of the two? Those are the questions Texas lawmakers are asking as they decide if fantasy sports companies should operate in the state.

Attorneys general in Idaho, Delaware and Hawaii have banned daily fantasy sports operators from hosting for-money competitions. In New York, temporary licenses distributed under a new law allow daily fantasy sports operators to conduct business. Some daily fantasy sports operators don’t serve Florida, Missouri, Indiana and Virginia, as attempts to regulate the growing industry continue there.

According to the Texas Fantasy Sports Alliance, approximately 4 million Texans play daily fantasy sports every year.

In a January 2016 statement, Texas Attorney General Ken Paxton noted that Texas’ law defines gambling as a game with “partial chance.”

“Paid daily ‘fantasy sports’ operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law,” Paxton said in the statement. “Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut.”

Companies such as FanDuel and DraftKings typically rake in 6 to 14 percent of the fees required to participate in contests those sites host. Eilers Research estimate daily games generated nearly $2.6 billion in entry fees in 2015.

Shortly after Paxton released his statement, FanDuel reached an agreement with the attorney general’s office in which the company will stop accepting paid contest entries on May 2. The company will, however, continue to operate its free games in the state.

In response to the statement by Paxton, DraftKings petitioned for a declaratory court judgment that would clarify the legality of fantasy sports contests in Texas. Since Paxton’s statement is an unbinding opinion, DraftKings is looking for a court to rule conclusively on the matter.

Meanwhile, a bill filed in February by state Rep. Richard Raymond (D-Laredo) aims to redefine fantasy sports as a game of skill.

House Bill 1457 argues that a fantasy sport competition “is based on the actual statistical performance of the selected athletes in sports competitions,” and therefore constitutes a game of skill. The House Committee on Licensing and Administrative Procedures left the bill pending after an April 3 hearing.

Kyle Mauro, chief of staff for Raymond, said the representative is “interested in making sure that people in Texas have the ability to play fantasy football. He wants to make sure that it’s very clear that it’s not a game of chance.”

“It takes an amount of skill and knowledge to set up a team in a way that would allow you to be successful in a competition,” Mauro said. “It’s not like rolling a dice. You have to have some background knowledge.”

Fantasy sports players choose the contest they want to enter, the fee and the prize, and prize and then choose their team’s lineup. They must stay below the salary cap. Teams earn points based on the performance of their players, which can be affected by tough match-ups, injuries and slumps in the real world of professional sports. Such considerations require users to constantly scrutinize statistics and news, because fantasy matches can last a day or a week. The size of the bets varies, as do the payouts; in head-to-head contests, the winner takes all. In multiplier leagues, players can win up to 10 times the entry fee

The Christian Life Commission, an arm of the Baptist General Convention of Texas, long has lobbied against gambling in Texas, and has sided with Paxton.

Robert Kohler, a consultant for the group, said daily fantasy sports operators would need a constitutional amendment to legally host for-money contests in Texas.

Kohler added that while he had tried fantasy sports for the first time during the last NFL season and “loved it,” it was still wrong to commercialize it.

Like Kohler, millions of Americans have taken up fantasy sports in recent years. According to the Fantasy Sports Trade Association, the industry grew from 32 million players in 2010 to over 56 million in 2015. The amount players spent on fantasy sports each year increased as well, from close to $5 in 2012, to around $318 in 2016.

“Whether it’s sports betting or poker, there is always going to be some chance involved,” said David Schwartz, the director of the Center for Gaming Research at the University of Nevada, Las Vegas. “Gambling, in any way, is going to be popular.”

DraftKings has a sponsorship deal with the Dallas Cowboys. Cowboys owner Jerry Jones is also an owner of Legends Hospitality, a DraftKings partner. But  as litigation between DraftKings and the attorney general’s office continues, the days of daily fantasy sports betting in Texas may be numbered.

“The problem is both sides of the debate define gambling differently,” Kohler said. “Which makes even talking about the issue difficult.”