The Stronach Group, operators of horse race tracks across the nation, has cashed in its winning ticket in a settlement and is set to receive $500,000 over the next year from the owners of Derby Wars, a website offering a fantasy game based on horse racing, which it sued in 2015.
The ruling caps two years of litigation that began when the Stronach Group, which operates Santa Anita Park in Greater Los Angeles, Golden Gate Fields in the San Francisco Bay Area and Pimlico in Baltimore, among others, sued Horse Racing Labs. The tracks argued that they should be compensated for providing the competition that the Derby Wars handicapping competition was based on.
“We are very pleased with the outcome of this case,” said Scott Daruty, Stronach’s executive vice president of content and media. “We filed this lawsuit to establish the precedent that the racing content generated by racetracks and horsemen cannot be used for wagering purposes without consent.”
In the original suit, filed in December 2015 by attorney Richard Specter of Irvine, California-based Coleman Steele & Specter, the Stronach Group alleged violations of the Interstate Horseracing Act, the Racketeer Influenced and Corruption Organizations Act (RICO) and California’s Unfair Competition Law.
Derby Wars lawyers, Manatt, Phelps & Phillips attorneys Maura Gierl, Arunabha Bhoumik and Matthew Kanny, argued that the entry fees weren’t wagers at all, but rather contests, as defined by the California Business and Professions Code. The case was closely watched nationally because of its potential impact on several cases involving compensation for the horse racing industry from websites that profit from the sport.
Federal Judge James Otero of the U.S. District Court for the Central District of California, disagreed last month and ruled that entry fees paid by Derby Wars customers are considered wagers under the Interstate Horseracing Act (IHA) of 1978, while dismissing the RICO and other elements of the lawsuit.
“The case is now fair game as persuasive authority or precedent in other daily fantasy sports cases,” according to Florida-based attorney Daniel Wallach of Becker & Poliakoff, an authority on sports, fantasy sites and gaming. Courts in New York, Illinois, Massachusetts and Texas are wrestling with lawsuits that raise the issue whether fantasy sites constitute a form of gambling or betting.
“We are gratified that the court agreed with our legal position that these fantasy contests are, in fact, interstate wagering on horse racing, such that our clients, the racetracks, as well as the horsemen, are entitled to compensation,” said Specter, lead attorney for the plaintiffs.
The ruling means that Derby Wars is subject to the rules and regulations of IHA and will require the approval of the host track where the races are run. Derby Wars will have to enter into a revenue-sharing agreement with tracks and horsemen for the contests.
“Now they will be compensated like any other vendor in a supply chain,” said Wallach.
The fantasy sites had indicated a willingness to work out some sort of compensation agreement in the past, but the challenge will be determining what’s fair. Derby Wars typically takes about 10 percent of the revenue generated by the entry fees.
The Stronach Group was entitled to $1 million under the original terms of the settlement, which eliminated the need for a trial to determine the damages. But under the stipulated terms agreed on in Thursday’s ruling, the parent company of Derby Wars will pay just under $500,000 if it pays $250,000 within three business days and makes payments of $20,833 for 12 months, or $249,996.