Updated on 06/15/2017 11:30AM

Stronach Group, Derby Wars reach settlement

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Derby Wars, an online racing contest operator, will begin seeking consent from racetracks to use their races in its contests as a result of a settlement the company reached with The Stronach Group, a large U.S. racing company, the chief executive and founder of Derby Wars said on Thursday.

The settlement, which was approved by a judge on Tuesday, specifically requires Derby Wars to obtain consent from The Stronach Group’s racetracks before using any of the company’s races in its contests. However, the terms of the settlement, and the larger issues it has raised, has moved Derby Wars to seek consent agreements with all racetracks whose content appears on its site, according to Mark Midland, Derby War’s top official.

“We are immediately signing new agreements with tracks, and we see a bright future for contests as we continue to commit our team and resources to driving innovation in horse racing to benefit all,” Midland said in a statement.

When asked if his company would be set back by the settlement, Midland said: “I think there will be some disruption as contest sites work out agreements with tracks, but after that, it should be business as usual.”

The settlement defuses a dispute that resulted in The Stronach Group suing Derby Wars in 2015, alleging that the company had violated provisions of the Interstate Horseracing Act, a 1978 federal law, by using races from The Stronach Group’s tracks in online tournaments without the company’s approval. It also will allow both sides to avoid a trial that was scheduled for later this month.

Under the settlement, Derby Wars is required to pay $250,000 up front to The Stronach Group and then make monthly payments of approximately $20,000 to the company for the next year, for a total of just under $500,000.

The settlement was reached one month after a judge ruled that Derby Wars should be considered an offtrack betting outlet and subject to the terms of the Interstate Hosreracing Act, which forms the regulatory backbone for interstate simulcasting. That act requires tracks, their horsemen, and racing commissions to approve simulcasts before they can be offered for wagering by an out-of-state site.

For that reason, the settlement is likely to have an impact on the industry beyond Derby Wars, as The Stronach Group and other racetrack operators use the case to press other contest sites to obtain consent for the use of their signals, at least when those sites are using simulcast content as the basis for generating their own revenue.

The case is also expected to have an impact on the organizers and administrators of handicapping tournaments, with most legal experts contending that those organizers also will now have to obtain consent for the use of races, even if the consent does not include a financial component. Some organizers of handicapping tournaments, such as the National Thoroughbred Racing Association, had begun seeking consent from tracks in the past several months, in part because of The Stronach Group suit.

Daily Racing Form operates a tournament website that may also be affected by the settlement.

Although both sides had said that they nominally pursued a settlement in the months prior to the May ruling, officials for The Stronach Group also said that they fully intended to push the case forward to seek a favorable ruling establishing online contest sites as wagering outlets, framing it as an issue with larger ramifications for the racing industry. Simulcasting provides approximately 90 percent of the wagering revenue in the industry, and that revenue is shared by tracks and horsemen.

“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 racetracks and horsemen putting on the show receive adequate compensation for the racing content they are creating,” Scott Daruty, the executive vice president of content and media for The Stronach Group, said in a statement.

The Stronach Group, a private company controlled by the billionaire owner and breeder Frank Stronach, owns Santa Anita Park, Golden Gate Fields, Gulfstream Park, Laurel Park, Pimlico Race Course, and a handful of other racing-related companies, including XpressBet, an account-wagering operator, and AmTote, a bet-processing company. DRF operates an account-wagering platform in partnership with XpressBet.

The settlement also requires Derby Wars to “memorialize” the May ruling by Judge James Otero of the U.S. District Court for the Central District of California, meaning that Derby Wars will agree in its negotiations with The Stronach Group that it is subject to the Interstate Horseracing Act and that the fees paid by users of the sites will be regarded as wagers.

The dispute was viewed by some as a kind of David-vs.-Goliath fight, a depiction that generated sympathy for Derby Wars and other small online contest operators. Most of the contest operators have small but devoted followings, and supporters have viewed the contests as providing an innovative way to broaden the appeal of horse racing by pitting players against each other in contests to see who can generate the largest bankroll from mythical wagers in a selected series of races, similar to offerings provided by fantasy-sports contest operators like FanDuel and DraftKings.

After the May ruling, Derby Wars removed races from tracks operated by The Stronach Group from its contests, but it did not cease operating, instead limiting its contests to races from tracks that were not a party to the suit. In addition, last year, Derby Wars reached out to at least one racetrack, Hawthorne Racecourse near Chicago, to cut the track in on any revenue from contests using Hawthorne’s races, an agreement that ultimately foreshadowed the terms of the settlement reached with The Stronach Group.

Midland said on Thursday that Derby Wars had also reached agreements with several racetrack operators other than Hawthorne, and that the company “will announce more agreements in the coming days.”

On Thursday, contests on Derby Wars were limited to Belmont Park, operated by the New York Racing Association, and Hawthorne.