Federal Judge Rules Against Derby Wars

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By Joe Bianca

Judge James Otero of the United States District Court for the Central District of California ruled Monday that handicapping tournament website Derby Wars has been acting as an off-track betting entity and is subject to the guidelines of the federal Interstate Horseracing Act as a result.

In a story first reported by The Paulick Report, the order, stemming from a lawsuit filed by Stronach Group racetrack associations against Derby Wars parent company Horse Racing Labs, strikes a major blow against increasingly popular contest sites’ ability to operate independently.

The case is similar to litigation brought against Daily Fantasy Sports companies in recent years and hinges on whether Derby Wars’ entry fees, which are returned to contest winners as prizes after the site takes a percentage, qualify as wagers on races. Otero determined that they are, saying Derby Wars “contests are most similar to exchange wagering” and “the Court agrees with [Stronach Group] that Derby Wars entry fees are more akin to the wagers which form the ‘pot’ in poker,” citing a 1995 case about whether a jackpot poker game constituted an illegal lottery.

Otero’s entire ruling can be viewed here.

“We’re pleased with the ruling,” Scott Daruty, an executive for Stronach Group who has led the charge to more strictly regulate contest sites, told TDN Wednesday. “We’re pleased that the court has recognized the rights of the racetracks and horsemen to be compensated for the product they create when people are betting on it.”

Daruty said that Stronach Group is open to working with sites like Derby Wars in the future since handicapping tournaments are “a product that people seem to want and enjoy, so we feel like it’s our job to figure out a way to get it to them,” but added that “we have to do it in a way that doesn’t undercut the economics of the racing industry.”

Last March, Derby Wars reached an agreement with Hawthorne Race Course to contribute to the track and its horsemen a portion of revenue from its contests that include Hawthorne races. The company’s co-founder and CEO Mark Midland said at the time that the agreement was the first step toward creating a more symbiotic relationship with the racing industry, but no further deals have been struck.

Midland could not be reached for comment Wednesday, but said in a statement: “We are disappointed with the Court’s ruling, but intend to press forward with our defense and are evaluating our options to appeal the Court’s order, with which we disagree. We believe DerbyWars has created a product that is innovative and advances horse racing in a sport that needs more innovation. We look forward to continue building new products and helping to grow the sport we love.”

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