Brent Schrotenboer

USA TODAY Sports

FanDuel has reached a settlement with the state of Texas to wind down its operations and suspend its paid contests there after the state’s attorney general determined in January that the company was running an illegal gambling business.

The company announced the agreement Friday – the latest blow to the beleaguered daily fantasy sports industry as it continues to fight for survival from New York to Hawaii. Effective May 1, Texas becomes the ninth state in which FanDuel will not offer its paid contests because of state gambling laws, not including New York and Illinois, where it continues to operate while it fights for its survival in court.

The New York-based company said it will push for legislation in Texas next year that will allow the company to return.

Draft Kings, FanDuel granted stay, permitted to operate in New York

“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,” FanDuel said in a statement. “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.”

DraftKings, FanDuel’s chief rival, took a different approach and is suing Texas Attorney General Ken Paxton in its quest to stay alive there. In its suit, DraftKings states that FanDuel's agreement with Texas "evidences the Attorney General’s intent to scuttle (daily fantasy sports) operators in the State of Texas, and illustrates the imminent harm that DraftKings could itself face without this Court’s intervention."

Filed in Dallas County, the suit is asking the court to declare that daily fantasy sports are fully legal under Texas law because they are games of skill instead of chance or luck like traditional gambling.

“Due to recent actions in Texas, the company has today taken the responsible and unavoidable step of seeking a declaratory judgement to bring clarity to its legal situation,” DraftKings attorney Randy Mastro said in a statement. “We look forward to presenting evidence to demonstrate that Daily Fantasy Sports are skill-based games and perfectly legal under Texas law, certainly no less so than other kinds of skill-based contests. We are committed to ensuring that our fans can continue to enjoy the contests they love."

The state of Indiana may have solved the daily fantasy sports problem

The companies have been operating for more than three years and have been supported by pro sports leagues, including the NBA, which announced an equity stake in FanDuel in 2014. But they have been under siege since October after a heavy advertising blitz on television led to increased scrutiny and questions about their legality. In exchange for an entry fee, the companies offer customers the chance to win big cash prizes based on the statistical performance of players in real-life sporting events that week.

FanDuel said customers still will be able to participate in free contests in Texas after May 1. The settlement with Texas says FanDuel will block people located in Texas from playing in paid contests. It also says that the state will release FanDuel from any criminal or civil claim or proceeding. If DraftKings reaches an agreement with the state to continue offering paid contests there, FanDuel can do the same, according to the agreement.

Because of state gambling laws, FanDuel and DraftKings are not offering paid contests in Arizona, Hawaii, Iowa, Louisiana, Mississippi, Montana, Washington or Nevada, where the state requires them to get gambling licenses.

Follow sports reporter Brent Schrotenboer on Twitter @Schrotenboer. E-mail: bschrotenb@usatoday.com