AUSTIN, Texas (Legal Newsline) — DraftKings has filed a lawsuit challenging Texas Attorney General Ken Paxton's assertion that daily fantasy sports likely constitute illegal gambling under state law.

DFS sites are under scrutiny in several states. Some have taken legal action to stop sites, namely DraftKings and FanDuel, from accepting bets from their residents. A class action suit in Oregon was filed on behalf of more than 100 players who lost money on bets they placed using the two sites in the last three years.

In New York, Attorney General Eric Schneiderman amended a lawsuit against the two companies, asking for restitution for state residents who lost money.

Paxton opines that the popular DFS site violates Texas law because users make bets on the outcome of participants in a game or contest, which is illegal.

“Because the outcome of games in daily fantasy sports leagues depends partially on chance, an individual's payment of a fee to participate in such activities is a bet. Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling,” the opinion states.

The opinion, released in January, was penned in response to legislative inquiry. It’s not law, but the AG could bring a lawsuit against DFS companies, which is what happened in New York, said James Gatto, an attorney at Sheppard Mullin Richter & Hampton.

“Unless a court rules, the AG cannot unilaterally stop them,” Gatto said.

In its suit, DraftKings argues that it doesn’t violate state gambling laws because DFS is predominately a game of skill, not chance.

The company also argues that DFS contestants are “actual contestants” who are permitted to accept a reward or prize in a “bona fide contest for the determination of skill,” under Texas law.

This counters the AG’s opinion that the relevant “contest” is the game involving professional athletes, which means DFS contestants aren’t “actual contestants.”

FanDuel, which is named alongside DraftKings in claims in other states, is not involved in the Texas suit. Rather, FanDuel reached a settlement with the state earlier this month.

The company agreed to stop accepting paid entries for cash prizes from Texas participants beginning May 2. It may, however, continue with free games in the state.

Despite differing decisions on how to proceed, the DraftKings suit could answer the question in Texas for all DFS companies.

“FanDuel cut a deal. DraftKings is aggressively fighting,” Gatto said. “If DraftKings wins its suit, my guess is FanDuel can re-enter Texas.”

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