CLIENT ALERT: Recent Developments Concerning The Legality Of Daily Fantasy Sports In Texas, Vermont And Maryland
January 19, 2016

Texas

On Tuesday, January 19, 2016, Texas Attorney General Ken Paxton issued an advisory opinion that a Texas court would likely determine that participating in daily fantasy sports contests is illegal gambling under Texas law. Tex. Att'y Gen. Op. No. KP-0057. Specifically, the Texas AG advised that in Texas, illegal gambling occurs when a person “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.” TEX. PENAL CODE § 47.02(a)(1).  Additionally, under Texas law, a “bet” means “an agreement to win or lose something of value solely or partially by chance.”  Id. § 47.01(1). Therefore, citing a prior conclusion of the AG (that it is “irrelevant” whether “poker is predominantly a game of chance or skill…if an element of chance is involved…it is embraced within the definition of bet,”), the AG concluded the amount of chance involved is similarly irrelevant to whether participants in DFS contests “bet” under Texas law, as long as at least an element of chance is involved.  The attorney general opined that it is “beyond reasonable dispute” that daily fantasy leagues involve an element of chance, and thus, it is likely a Texas court would conclude the activity is illegal gambling. 

The advisory opinion rejected arguments that the statutory exemption to “bet”—for "an offer of a prize, award, or compensation to the actual contestants in a bona fide contest for the determination of skill[.]—applied to daily fantasy contests." TEX. PENAL CODE§ 47.01(1)(B). While the advisory opinion acknowledged Texas courts have yet to address this exclusion, one prior attorney general opinion in 1994 evaluated whether the exclusion applied to participants paying an entry fee for a chance to win prizes in a contest forecasting the outcome of approximately 150 sporting events, which required "using the skills necessary to analyze relevant data, including, but not limited to, point differentials…weather conditions, injuries or other factors." Tex. Att'y Gen. Op. No. L0-94-051, at 1. That 22 year-old opinion  concluded that the exclusion “may embrace athletes actually competing in the sporting events,” but “does not embrace those who pay entry fees for a chance to win a prize from forecasting the outcome of the events." Id. at 2.

 Attorney General Ken Paxton noted that his office’s interpretation of the exemption “remains unchanged,” providing an example distinguishing a person who plays in a golf tournament for an opportunity to win a prize from a person wagering on the performance of that golfer.  To interpret the exemption as some DFS operators suggest—that DFS managers are the actual participants in the contests—would “have that exception swallow the rule.”

Vermont

While the Vermont Attorney General’s office has not issued a formal opinion or taken any other legal action related to DFS, in a recent interview discussing a Vermont bill that would exempt fantasy sports from the state’s anti-gambling laws, John Treadwell, a state assistant attorney general, stated that “daily fantasy sports violate Vermont’s gambling laws.”  Mr. Treadwell noted that, “Vermont has very strict long-standing limitations on gambling,” which ban wagering on both games of chance and of skill, prohibit collection of gambling debts, and allow people who lose money in bets to sue to recover their losses.  As for the bill introduced to exempt daily fantasy sports from Vermont’s gambling laws—Mr. Treadwell stated that giving “special status” to one form of gambling over another “does not seem appropriate.”  However, the attorney general’s office has not taken any formal action on the issue, and the legislature continues to consider the bill. 

Maryland

Maryland passed a law in 2012 explicitly making real-money fantasy sports legal, using language from the Unlawful Internet Gambling Enforcement Act. However, an advisory opinion issued by the Maryland Attorney General’s office on January 15, 2016 explored whether the 2012 law was enacted according to proper legislative procedure. Specifically, the attorney general’s office responded to a question regarding their “view as to whether Chapter 346 of 2012, which exempted fantasy sports from the prohibitions against betting, wagering, and gambling contained within Title 12 of the Criminal Law Article, had the effect of expanding commercial gaming and thus should have been subject to referendum” under the Maryland Constitution. 

This question depended on three underlying questions: (1) Does the fact that the fantasy exemption was included in Title 12 of the Criminal Law Article exempt it from the referendum requirement since it does not apply to “gaming conducted under Title 12”?;  (2) If not exempt, did the law authorize both daily and traditional fantasy sports; and (3) Do fantasy sports qualify as “commercial gaming” such that their authorization triggers the referendum requirement.

The opinion notes that the answers to the foregoing questions are “close calls” with no clear answer.  The analysis is complicated given: (1) statutory language and legislative history that “conflict in critical aspects,” (2) given the large number of fantasy sports platforms, it is difficult to address the subject in a broad conclusion, and (3) there are few judicial opinions addressing daily fantasy sports, and none in Maryland. 

In the attorney general’s “belief,” subject to the foregoing caveats, the “better answer to each question” leads to the conclusion that there should have been a referendum in order to authorize daily fantasy sports.  This “belief” was not only subject to the caveats mentioned above, but also includes a statement that “due to the substantial uncertainty surrounding these issues and because the legislative history surrounding Chapter 346 suggests that the focus of the debate in the General Assembly in 2012 was not on the regulation of daily fantasy sports, we recommend that the Legislature squarely take up the issue this session and clarify whether daily fantasy sports are authorized in Maryland.” In other words, the advisory opinion acknowledges the uncertainty in the law, and suggests that legislature should resolve that uncertainty.    

For more information on these developments or Lewis Roca Rothgerber Christie’s interactive gaming services, please contact: Tony Cabot at ACabot@lrrc.com or Karl Rutledge at KRutledge@lrrc.com.

Authors