By Erwin Seba and Jon Herskovitz
HOUSTON (Reuters) - Texas reached a deal with fantasy sports firm FanDuel by which it will halt paid operations on May 2, the state's top prosecutor said on Friday, two months after saying such online operations are illegal gambling.
FanDuel will continue to operate its free games in Texas, but will stop accepting paid contest entries on May 2. In return, the prosecutor agreed not to take any legal action against FanDuel over its contests.
"I commend FanDuel for responsibly and pro-actively working with us to reach this settlement," Texas Attorney General Ken Paxton said in a statement.
In January, Paxton said daily fantasy sports games that charge players to compete cannot operate legally in Texas, joining other states in challenging the legality of such online contests.
Randy Mastro, a lawyer for DraftKings, said after the January decision that the company disagreed with Paxton's views. A DraftKings representative could not immediately be reached for comment on Friday.
The growing, multibillion-dollar fantasy sports industry dominated by DraftKings and FanDuel has drawn increased attention from state regulators over the past year, with the attorneys general of New York, Illinois and Nevada challenging their legality.
Texas, with a $1.6 trillion yearly economy, is a major market for daily fantasy companies, which charge customers to take part in mostly single-day games in which they draft a roster of players whose performance on the field earns points.
In the daily games, participants pay to compete for cash prizes against others in online leagues based on imaginary teams assembled from rosters of real players, which accumulate points based on how those players perform in actual games.
The games are illegal in Arizona, Iowa, Louisiana, Montana and Washington. The attorneys general of New York and Illinois have also declared the games illegal, but those rulings are being challenged in state courts.
Nevada has said fantasy sports companies cannot operate in the state unless they receive gaming licenses.
(Reporting by Erwin Seba in Houston and Jon Herskovitz in Austin; Editing by Chris Reese and Grant McCool)