Fantasy Horse Racing Site Derby Wars Facing Lawsuit

The Paulick Report broke some interesting news earlier today. A number of race tracks based in the United States and owned by the Stronach Group filed a lawsuit in California earlier today against fantasy horse racing site DerbyWars.com.

At the heart of the suit is a complaint that Derby Wars effectively offers unlicensed horse racing betting. The UIGEA and other pieces of anti-gaming legislation specifically exempt horse racing betting, but only for operators who have the proper state licensing. For example, BetAmerica and TwinSpires are both authorized to book real money horse racing wagers in most US states.

Derby Wars does not have the proper licensing, but it also doesn’t offer traditional horse racing betting. Instead, it hosts real money fantasy contests in which your goal is to assemble a “team” of horses and then earn fantasy points based on each horse’s performance in real world races. When your team outscores the teams built by other contestants, you win a real money prize.

Nonetheless, the Stronach Group argues that the product offered by Derby Wars is effectively gambling. Thus, the lawsuit alleges that Derby Wars is in violation of the Interstate Horseracing Act and offering wagers without a California, Florida, Maryland or Oregon license among other charges. The complaint further seeks damages for depriving tracks of the revenue that “they are entitled for bets placed on races run at the meets that they operate, in an amount to be determined at trial.”

The timing of this lawsuit is probably no coincidence considering the questions that have been raised over other daily fantasy sports apps such as FanDuel and DraftKings. Just recently, the Nevada Gaming Control Board declared that fantasy sports meet the state’s definition of gambling. Meanwhile in New York state, the attorney general there ordered fantasy sites to stop doing business in the state because they also meet that state’s definition of gambling.

Fantasy horse racing sites such as Derby Wars and others have long relied on the fantasy sports carveout provided by the Unlawful Internet Gambling Enforcement Act (UIGEA). However, the UIGEA does not supersede state law and does not apply if an activity is deemed to be gambling. This lawsuit argues that what Derby Wars offers is indeed gambling and is therefore illegal without the proper licensing.

How Does this Affect Regular Racing Betting Sites?

Sites such as BetAmerica and TwinSpires should be unaffected by this lawsuit. Traditional horse racing sites that offer straight up betting hold all the necessary licenses they need to operate. The question of online horse racing betting was answered long ago – it is completely legal as long as operators comply with all licensing requirements and regulations.

The legality of licensed betting sites is unquestioned and will remain so unless federal law changes. Derby Wars operates from a completely different position. They never sought licensing on the basis that what they offer is fantasy sports, which is protected by the fantasy exemption written into the UIGEA. The problem is that an increasing number of states are starting to contend that daily fantasy sports contests meet their legal definitions of gambling.

Licensed betting sites make no bones about it. They acknowledge that their business is indeed gambling and have already jumped through all the necessary legal hoops to avoid running afoul of the law.

It is tough to predict the outcome of this lawsuit, but the complainants have a pretty solid case. The outcome will probably depend on what the California AG decides in a separate case involving fantasy sports. If the lawsuit is successful and if Derby Wars can survive any financial penalties, they will probably have to apply for the same licenses that other betting sites have already had for years.