Texas Attorney General Ken Paxton [official website] announced [press release] Tuesday that daily fantasy sports websites in which players pay to participate are considered gambling and are therefore illegal in the state. Paxton released an official advisory opinion [text, PDF] in which he stated that fantasy sports leagues and online websites such as Draftkings and FanDuel [websites] are both operating illegally in the state when the house and participants take “cuts” of the money placed on the performance of the sport or athletes:

[T]he Legislature has seen fit to prohibit betting on the performance of individuals in games or contests but to not prohibit actual contestants in contests of skill from receiving compensation or prizes. Under this statutory framework, odds are favorable that a court would conclude that participation in paid daily fantasy sports leagues constitutes illegal gambling, but that participation in traditional fantasy sport leagues that occurs in a private place where no person receives any economic benefit other than personal winnings and the risks of winning or losing are the same for all participants does not involve illegal gambling.

The opinion was drafted after an inquiry about whether the two sites were legal in the state. FanDuel and Draftkings both released statements [ESPN report] disagreeing with the opinion and said they will continue to operate within the state.

Gambling is heavily regulated federally and on the state level. Last week the Appellate Division of the New York State Supreme Court [official website] granted [JURIST report] FanDuel and Draftkings a stay allowing them to continue to operate within the state during their appeal. In August the US Court of Appeals for the Third Circuit [official website] ruled [opinion, PDF] against New Jersey, deciding 2-1 to uphold the federal ban on sports betting in all but four states. In December 2011 the US Department of Justice (DOJ) [official website] clarified its stance on online gambling [JURIST report] in a memorandum opinion holding online non-sports related gambling that crosses state or international borders is not covered by the Wire Act of 1961 [text,PDF].