A U.S. District Court ruled in favor of The Stronach Group

A U.S. District Court ruled in favor of The Stronach Group

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U.S. Court Defines Contest Entry Fees as Wagers

Court made ruling in lawsuit filed by The Stronach Group tracks against Derby Wars.

In a victory for The Stronach Group tracks suing the contest site DerbyWars, a U.S. District Court has ruled that entry fees paid in contests are considered wagers under the Interstate Horseracing Act of 1978.

In a partial summary judgment released May 15 by the U.S. District Court for the Central District of California, Judge S. James Otero agreed with the plaintiff, a group of tracks and racing associations owned by The Stronach Group, that entry fees paid at the DerbyWars site constitute a wager. DerbyWars had argued that its games are comparable to fantasy contests and entry fees at the site do not meet the definition of bets or wagers under the Unlawful Internet Gambling Act of 2006.

In making its decision, the court determined that such entry fees are more akin to the wagers that form a pot in poker, citing the 1995 case of Bell Gardens Bicycle Club vs. the Department of Justice in that definition. The court ruled that DerbyWars is acting as an off-track betting outlet in the states where The Stronach Group's racetracks operate (the tracks and states in question in the lawsuit).

"Having determined that DerbyWars entry fees constitute a wager, where such wagers are placed with DerbyWars in Kentucky, with respect to the outcome of a horserace, or series of up to six individual horseraces, as the case may be, taking place in California, Oregon, Maryland, and/or Florida, and where such wagers are received over the Internet, the court concludes that defendants are operating an off-track betting system subject to the Interstate Horseracing Act," Judge Otero wrote in his decision.

The court not only disagreed with Horse Racing Labs' contention that the IHA does not apply to DerbyWars wagers, but also denied the defendant's argument that the litigation should not even proceed because it had passed the IHA statute of limitations. Under the IHA civil action may not be commenced more than three years after the discovery of an alleged violation on which the civil action is based. The lawsuit was filed Dec. 2, 2015.

Horse Racing Labs argued that The Stronach Group tracks were aware of DerbyWars as early as September 2011, but the court determined that while Stronach Group officials may have been aware of Horse Racing Labs' fan site, Horse Racing Nation, and possibly the free-to-play contests at DerbyWars, they were not aware before December 2012 of the Derby Wars contests that required an entry fee and offered payouts.

The case marks the first time racetracks have taken legal action against a horse racing contest site.

The Stronach Group argues that DerbyWars is operating unlawfully by using its races for the contests without compensating the tracks. The suit contends that DerbyWars is hurting the tracks' business and seeks monetary damages in an amount to be determined at trial. Following the May 15 partial summary judgment, The Stronach Group appears well-positioned to be awarded those monetary damages although DerbyWars said it will press forward in this case and is evaluating its options to appeal.

"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," DerbyWars said in a statement. "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."

Racing contest Internet sites have flourished in recent years, offering players a chance to compete against other players in selecting the winners of races at tracks throughout North America. The contest sites have come up at a time that daily fantasy sports sites, which claim they're legal as games of skill, have operated without scrutiny, until recently, from law enforcement.