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Derby Wars loses court battle

By Ron Flatter
VSiN.com

The definition of gambling has reared its head again in a court case – this time involving a digital platform that hosts horse-race handicapping contests.

A federal court in Los Angeles ruled this week that the Derby Wars on-line competitions are illegal. District Judge James Otero’s decision came in a lawsuit filed by the Stronach Group racetracks that include Santa Anita, Gulfstream Park and Pimlico – the site of Saturday’s Preakness Stakes.

“The entry fees paid in contests offered by (Horse Racing Labs) on its Derby Wars website are wagers under the Interstate Horseracing Act of 1978,” Otero wrote in his 14-page decision. The “defendant is operating an off-track betting system.”

Otero’s ruling opened the door for the Stronach Group to try and get money from the Kentucky-based Horse Racing Labs and even force the shutdown of its Derby Wars, which were still up and running on Thursday.

A Stronach Group executive told the Daily Racing Form that a trial is scheduled for next month. VSiN emails looking for comment from the Stronach Group and Horse Racing Labs had not been answered by midday Thursday.

Just like the legal cases against daily fantasy sports that mushroomed in 2015, the obvious bone of contention here is whether the Derby Wars contests are games of chance or skill. In fact this suit was filed by the Stronach Group around the same time Draft Kings and FanDuel had their reins pulled by the states of New York, Illinois and Nevada, all of which decided that daily fantasy sports were at the time an illegal form of gambling. New laws in New York and Illinois allowed Draft Kings and FanDuel – which are merging – to resume business under new boundaries.

Otero sided with the Stronach Group’s belief that entry fees being paid to play Derby Wars are wagers, and that the percentage kept by the owner are like juice to a bookmaker. Horse Racing Labs unsuccessfully contended that their contests were at least in part games of skill.

Otero made the comparison that “while the wagers which form the pot in poker do not constitute a prize as defined by California law, the jackpot prize did.” He wrote that a victory in games like poker – and Derby Wars – “depended solely upon the fortuity or random event of one person having the second-best hand and another person having the game’s best hand at the same time.”

“That’s a judge who’s done his homework,” said Johnny Avello, who runs the race and sports books at Wynn Las Vegas. “The way I do business a booked race is basically a sports bet. If it’s not going into a pool, a cut comes out, and the rest is distributed like a pari-mutuel race, it’s a booked bet. It can’t be anything but a booked bet.”

A look at the Derby Wars website Thursday afternoon showed dozens of contests on offer with an entry fee ranging from $4 to $2,200 and firmly set prizes of $100 to $300,000. Games include racing versions of Survivor – eliminating contestants with each successive losing bet during a series of races – to more elaborate, multi-day competitions that rank players by the winning payoffs at the tracks where races are held. As long as two or more people were playing, the game was on.

If history – as in the daily fantasy sports model – is repeating itself, the end game may be a deal between Horse Racing Labs and the Stronach Group. Like other big track operators Stronach is looking to establish boundaries for the expansion of handicapping contests that are getting more and more popular in horse racing.

Some of the biggest contests are already being held at racetracks and often put together by race organizers like the Breeders’ Cup. The most prestigious of them is the annual National Horseplayers Championship, the finals of which are held each February at Treasure Island in Las Vegas. This year’s event had $2.8 million in prize money on offer.

 
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