Illinois and Texas: The Latest in the Daily Fantasy Sports Legality Issue

As daily fantasy sports (DFS) litigation is on standby in New York (pending is the expedited appellate hearing scheduled for January 4, 2016), the situation is heating up in Illinois and Texas.

Sparked by an alleged September 2015 insider trading scandal between DFS industry leaders DraftKings, Inc. and FanDuel, Inc., the legality of DFS has become a national issue among the country’s individual states. Under the Unlawful Internet Gambling Enforcement Act (2006), states have the individual and independent right to determine whether a subject activity constitutes “illegal gambling.” States may therefore permit DFS operations if they so choose. Massachusetts is currently set to become such a state—in November, the Mass. Attorney General proposed sweeping regulations seeking to impose consumer protections rather than ban DFS altogether.

However, DFS operations are arguably illegal under the language of existing gambling laws in states across the country. Consequently, certain states have decided to prosecute DraftKings and FanDuel, making up the opposite side of the spectrum—the states attempting to ban DFS altogether. New York is such a state. In November 2015, New York Attorney General Eric Schneiderman ordered DraftKings and FanDuel to cease and desist from accepting New Yorkers’ DFS wagers. The issue has subsequently been subjected to state court litigation.

Illinois is now poised to follow New York as of this past week. In a December 23, 2015 opinion letter, Illinois Attorney General Lisa Madigan concluded that, under state law, all games “of chance or skill” constitute illegal gambling in Illinois “when played for money.” She accordingly reasoned that DFS business operations are illegal under current law.

DraftKings and FanDuel responded the following day (December 24, 2015) by filing individual lawsuits in Illinois state court. DraftKings’ attorney, Randy Mastro, said in a statement that the company filed the suit “so that the hundreds of thousands of Illinois fans who have played openly and honestly for nearly a decade will know they can continue to enjoy the fantasy sports games they love.” The DraftKings complaint noted that Illinois residents represent ten percent of the company’s paid users and argues that Madigan’s action “will unjustly destroy a legitimate industry” if left unchecked.

Yet, of note, DFS companies do have some proponents in the Illinois legislature. Pending legislation in the Illinois General Assembly proposes to exempt DFS from the state’s illegal gambling laws.

As for the Lone Star State, DraftKings and FanDuel sent emails to their users on December 22, 2015, requesting that customers petition Texas Attorney General Ken Paxton. In November, State Representative Myra Crownover (R-Denton) requested an opinion from Paxton regarding the legality of DFS in Texas. The DFS industry has asked Texas proponents to sign an online petition. The petition calls for DFS “freedom” in Texas.

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