In a court-approved settlement, the operator of the handicapping contest site DerbyWars will pay at least $500,000 to tracks owned by The Stronach Group, which filed suit in December of 2015.
The settlement agreement ends the litigation, which was scheduled to go to trial to determine the damages that Horse Racing Labs, owner of DerbyWars, would pay The Stronach Group tracks. In May U.S. District Court Judge for the Central District of California James Otero agreed with The Stronach Group that entry fees paid by DerbyWars players constitute a wager, subject to the rule of the Interstate Horseracing Act.
Under the settlement approved June 13 by Judge Otero, the DerbyWars owner could pay $1 million in the settlement but can reduce that payment to $500,000 by making an initial payment of $250,000 to The Stronach Group followed by 12 on-time payments of $20,833. Horse Racing Labs also has the option to pay off the settlement money sooner.
The case marks the first time racetracks have taken legal action against a horse racing contest site. Horse Racing Labs had argued that contest entry fees at its site were similar to money paid to compete in daily fantasy sports contests but the court did not agree.
Nothing in the settlement has Horse Racing Labs admitting a violation of the law. The settlement is not "construed as an admission by (Horse Racing Labs) of any fact, liability, issue of law, conclusion of law, or violation of statutory or regulatory laws."
The Stronach Group said it was important to protect its racing content.
"We are very pleased with the outcome of this case," said Scott Daruty, executive vice president of content and media for The Stronach Group. "We filed this lawsuit over 18 months ago to establish the precedent that the racing content generated by racetracks and horsemen cannot be used for wagering purposes without consent.
"As with all litigation, this case has been both time consuming and expensive. Therefore, we are very gratified that the court has confirmed our belief that cash-based handicapping contests are a form of wagering that requires consent."
Daruty said The Stronach Group is not opposed to contest sites, as long as they benefit the industry.
"We intend to immediately begin working with selected licensed handicapping contest operators to establish a business model, under which they can offer these contests to their customers using Stronach content while ensuring that the racetracks and horsemen putting on the show receive adequate compensation for the racing content they are creating," Daruty said.
DerbyWars founder Mark Midland said the ruling at least provides contest sites clarity on how to legally proceed.
"The Horse Racing Labs team is made up of lifelong, passionate racing fans, whose goal is to grow horse racing through new ideas and products," Midland said. "While we were disappointed in the ruling, the benefit is that the ruling has set a clear path for horse racing contest operators to proceed under the Interstate Horseracing Act.
"We are immediately signing new agreements with tracks and we see a bright future for contests as we commit our team and sources to driving innovation in horse racing to benefit all."