DraftKings Seeks Declaration that Daily Fantasy Sports Contests are Legal in Texas

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On April 16, 2018, DraftKings sought a declaratory judgment in Texas state court against Texas Attorney General, Ken Paxton. According to the petition, Paxton’s actions have sought to eliminate daily fantasy sports in Texas, and now, DraftKings is seeking a declaratory judgment to determine if daily sports are legal under Texas state law. DraftKings argued that the court need not look further than Paxton’s treatment of DraftKings’ main competitor, FanDuel, to see that Paxton’s “actions pose direct and particularized harm to DraftKings.”

In their petition, DraftKings argued that daily fantasy sports, including those offered by DraftKings, are contests of skill. Players act as “general managers of their fantasy teams, and in that role, they have to use their skill, knowledge of the sport and athletes – and master complex econometric and statistical concepts – to select their fantasy rosters of real world athletes.” While DraftKings acknowledged that some degree of chance is involved, they said “every statistical and economic expert who has studied [daily fantasy sports] has concluded that their outcomes turn on skill, not chance.” In fact, DraftKings argued that daily fantasy sports are no different than other legal contests like “bass fishing, bull riding, stock picking, and even beauty contests.” According to the petition, daily fantasy sports contest were offered in Texas, without regulation or any state official questioning their legality, until January 19, 2016 when Paxton “unilaterally issued an opinion letter declaring fantasy sports illegal.”

As we have previously covered, in March 2016, DraftKings filed suit in Texas state court against Paxton over his January 19, 2016 opinion letter. Now, as in March 2016, DraftKings argues that Paxton erroneously applied Texas state law. According to DraftKings, their contests are games of skill and consumers are “the actual contestants in a bona fide contest for the determination of skill, and therefore, are exempted from Texas statutory prohibitions.” However, according to DraftKings, Paxton’s attack does not stop with an erroneous application of law. Instead, Paxton has led a campaign to drive DraftKings, and its competitors, out the state. According to the petition, Paxton’s actions have caused DraftKings substantial harm, customers have withdrawn money believing DraftKings to be illegal, DraftKings has had problems with their bank, DraftKings has lost investment opportunities, the value of the business has decreased, and now DraftKings faces potential civil, and even criminal, ramifications.

DraftKings argued that the court should rule in their favor because (1) daily fantasy sports contests are contests were people seek a prize by engaging in a bona fide contest of skill and (2) daily fantasy sports do not turn n the result of one player or game, which would be illegal under Texas law; instead, they turn on the performance of “a mosaic of athletes across a variety of athletic teams and one or more contests.”

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