Analysis: Regulating Texas Fantasy Sports Would Generate Millions

Written By Tyler Andrews on June 27, 2022 - Last Updated on November 1, 2022
Regulating daily fantasy sports in Texas would bring in millions

Sports betting remains illegal in Texas. However, the state boasts one of the biggest daily fantasy sports markets in the country. Regulating daily fantasy sports in Texas would bring in millions in tax revenue.

Daily Fantasy Sports (DFS) lives in a gray area in Texas. It’s not exactly legal, but it’s also not really illegal. Major operators like DraftKings, FanDuel and Yahoo will happily take your business. Each operator brings a different style of gameplay. That gives Texans a lot of sports wagering fun in a state that is otherwise closed off to legal sports betting.

Exactly how many Texans play DFS, how much revenue DFS operators collect and how that revenue gets taxed takes some calculated guesswork.

Texas’s bimodal fantasy sports environment

The main reason for this guesswork is the fact that DFS lives in a bimodal environment in Texas. On one hand, there’s Attorney General Ken Paxton’ stance.

“Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut.”

On the other hand, the Texas House of Representatives voted in 2019 to approve DFS. The vote, a convincing 116-27 victory for DFS, superseded Paxton’s non-binding opinion. The bill, however, died in the Senate, allowing the ambiguity of DFS’s legality to live on.

Fantasy operators, FanDuel in particular, have played the hokey pokey with Texas as a result of the mixed messaging. They set up services in Texas, then pulled out, then put them back in again.

It’s highly unlikely at this point though that FanDuel or any major DFS provider will pull out of Texas with so many Texans on board. It’s also unlikely that Paxton would take the operators  let alone the players to court.

With that said, some may wonder what the DFS industry looks like in Texas. What kind of revenue are we talking? Of course, the state does not compile these numbers because, as of yet, the state hasn’t figured out where it stands on DFS. 

Michigan, Pennsylvania and Maine offer insight

A calculated estimation can be made from DFS data in three states to determine DFS revenue and tax data for Texas.

The three states — Michigan, Pennsylvania and Maine — all have legalized DFS. They all have multiple operators, just like in Texas. The tax structures vary in each state, which is something to consider with Texas’ tax-averse nature.

Three factors were analyzed.

  • The state’s annual net revenue, tax revenue and population
  • A proportional comparison based on the state’s population to Texas’ population
  • Mean revenue data for all three states
StatePopulationAnnual fantasy sports revenue (2021)Annual tax revenue (2021)Tax rate
Pennsylvania12.9 million$28,186,529$4,227,97815%
Michigan10 million$16,189,258$1,359,8978.4%
Maine1.37 million$2,359,592$23,92010% fee for all operators making over $100k

DFS funds benefit schools in Michigan

Michigan started regulating fantasy sports in 2018, taxing them at 8.4%. The revenue supports both enforcement of the Michigan Gaming Control Board and the state’s school aid fund.

In 2021, when this data were compiled, Michigan had 10 licensed fantasy operators, nine of which actively took payment. 

Pennsylvania chips away at property taxes

Texans, take notice. Pennsylvania, which has one of the highest fantasy tax rates at 15%, devotes the largest portion of its tax revenues to property tax reduction.

The Keystone State legalized DFS in 2017. The state currently has 12 licensed fantasy sports operators. Nine of them actively took payment in the last year.

This model, despite its high tax rate, should appeal to all Texas home-owning fantasy players who shudder when they open their appraisal notices. 

Maine incentivizes small operators

Maine, for a small state, plays a lot of fantasy sports. They have 10 operators. Nine actively took payment last year.

The state’s fee setup incentivizes small operators. Fantasy providers making over $100,000 a year pay 10% of their gross revenue into the state’s general fund. Last year, only three operators hit that threshold. 

Texas fantasy revenue could be $50M a year

Depending on which state’s data is used to calculate an estimate for Texas, The Lone Star State could approach $50 million a year in fantasy revenue.

Texas PopulationMean estimated annual fantasy revenueMean estimated annual tax revenue
30 million$55,262,580$6,955,601

The high standard deviation for the fantasy revenue totals ($7.3 million) indicates that these estimations give only a general picture. Some factors to consider:

  • Maine has no professional sports team; Texas has 11
  • Pennsylvania has the same number of operators as Michigan, but Pennsylvanians spend disproportionately more on fantasy
  • Pennsylvania taxes fantasy operators at nearly double the rate of Michigan
  • Maine’s tax structure, which incentivizes small operators, would look much different with Texas’s large population

Texas is also one of the most sports-obsessed states in the country. That alone suggests that both of these numbers could be on the low side.

Texas might as well benefit from DFS play

The bottom line is Texans are already playing DFS through the same operators as Michigan, Pennsylvania and Maine. Texas, however, isn’t capitalizing on regulation of the market.

This failure is conservatively costing Texas $5 million to $10 million a year in tax revenue. 

Is it likely that Texas would adopt a higher tax rate, like Pennsylvania or New York? They both tax fantasy sports at 15%+. Or, is it more likely Texas would mirror other Southern states? Mississippi, Louisiana, Arkansas and Tennessee tax DFS at 8% or lower?

In a state with an operating budget of $250 billion, these differences seem pretty slight. That is the argument opponents of legal gambling make.

However, when earmarked for specific funds, like property taxes or school districts, the impact could contribute to sustained annual relief of the most pressing concerns facing Texans.

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Written by
Tyler Andrews

Tyler is the Managing Editor for PlayTexas, covering sports, sports law and gambling for the Lone Star State. He has also covered similar topics for a number of Catena Media's regional sites including NCSharp, PlayCA, PlayFL, PlayOhio, and PlayMA. Tyler is a Texas resident and currently specializes in covering gambling legislation and news in emerging US markets.

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