FanDuel accepted the inevitable Friday and reached a settlement with the Texas attorney general Ken Paxton in which they agreed to cease paid games in May, in return for the state’s vow that it would not seek legal action against the daily fantasy company.
The settlement basically represents a capitulation from FanDuel. which could at this point be seeking to outlive its chief competitor, DraftKings, which has fought against rulings in Texas and will continue to operate in the state for the time being. According to Dustin Gouker, a leading expert on daily fantasy who covers the space for Legal Sports Report, this is the first time Fan Duel and DraftKings have significantly diverged in how they face a ban from an attorney general.
“Texas is a top-five market for daily fantasy sports operators, and the decision to leave the state without a fight was probably not one made lightly by FanDuel,” Gouker told The Comeback. “FanDuel gives up marketshare to DraftKings, who will presumably stay in the Texas market while it fights the battle in court. It does have the feel of FanDuel playing the ‘long game’ and living to fight another day.”
In making this deal in Texas, FanDuel is indicated it plans to be the last man standing, even if that means accepting a diminished ceiling for the company and its industry, while DraftKings is going to either get its way or die trying. It’s a fascinating divergence in strategy, one that could have something to do with that fact that FanDuel is bringing in substantially more revenue than DraftKings and perhaps better positioned for the future.
FanDuel is showing a level of professionalism during a tough time, while DK/MLBAM continues to 'fight w/ the world.' https://t.co/LTRrCxNhHC
— Marc Edelman (@MarcEdelman) March 4, 2016
Split b/t DK and FD legal strategies has been the most interesting aspect of all this to me. https://t.co/AE1PsapC8E
— Raffi Melkonian (@RMFifthCircuit) March 4, 2016
FanDuel made clear in an email to Texas users that it still believes its games are legal in the state but must comply with the attorney general’s decree that daily fantasy constitutes gambling and is therefore illegal. Via legalsportsreport.com, here’s a portion of the message Fan Duel sent to its Texan customers.
We believe FanDuel has always been legal in Texas and strongly disagree with the recent advisory opinion of the Attorney General, but understand that the laws surrounding fantasy sports require clarity. As such, we have worked with the Texas Attorney General to map out our plan to wind down our operations in Texas, suspending paid contests on May 1st. The Texas legislature will be in session in 2017 and we will work to pass legislation that protects fantasy sports and consumers so that we can bring our paid contests back to Texans as soon as possible.
And here’s what Paxton, the attorney general, had to say about the settlement:
“I commend FanDuel for responsibly and pro-actively working with us to reach this settlement,” Attorney General Ken Paxton said. “This will spare both the company and the taxpayers of Texas the expense of an extensive lawsuit that I believe would only affirm what my office has already determined.”
Unlike some other states, Texas law only requires “partial chance” for something to be gambling; it does not require that chance predominate. Traditional fantasy sports leagues that are not operated by a third party for revenue are, as a general rule, legal under Texas law. In those leagues, participants generally split any pot amongst themselves, so there is no house that takes a cut.
FanDuel will continue to operate its free games in Texas, but will stop accepting paid contest entries on May 2. In return, the Office of the Attorney General agrees not to take any legal action against FanDuel in connection with the operation of its contests.
Chris Grove surmises DraftKings maybe unable to pass up the revenue it could make in Texas given their financial position.
3/ … DK spent a lot more $ and lost a lot more than FD in 2015 (they also raised more). That suggests a plausible world in which DK …
— Chris Grove (@OPReport) March 5, 2016
5/5 … to risk an adverse ruling that could resonate through other states b/c to not take that risk would mean the end anyhow.
— Chris Grove (@OPReport) March 5, 2016
Texas is one of several states to declare paid daily fantasy illegal, so FanDuel and DraftKings will have plenty more opportunity to either accept their fates or wage bloody legal battles, whichever they so choose.