Updated on 12/03/2015 6:52PM

Stronach Group files lawsuit against Derby Wars


The Stronach Group, which owns a number of racetracks in the United States including Santa Anita Park and Gulfstream Park, filed a lawsuit Wednesday alleging that a fantasy horse racing site is in violation of federal law because its business is “indisputably a form of wagering on the results of horse races,” according to the suit.

The suit is the first filed by a horse racing entity involving the legally murky world of fantasy sports contests, a market that has drawn outsized attention over the past several months. The suit states that Derby Wars is providing its customers with a form of gambling in violation of the Unlawful Internet Gambling Enforcement Act, a 2006 federal law that outlawed most forms of internet gambling. The act included an exception for horse racing and also provided a carve-out for fantasy sports.

The suit states that the contests offered at Derby Wars fall outside of that fantasy-sports carve-out. In addition, because the suit argues that the contests are a form of wagering, it states that Derby Wars must have authorization from racetracks and horsemen to conduct its business, a requirement of the Interstate Horseracing Act of 1978. That act was passed to ensure that gambling sites provide compensation to the racing industry for offering bets on simulcast signals.

Derby Wars, which is owned by a limited-liability company called Horse Racing Labs, put out a statement late on Wednesday saying the company believes the suit does not have merit. It also said that Derby Wars is committed to racing and that the company’s contests provide benefits to racing by attracting and retaining fans of the sport.

“I have dedicated my entire career to advance the sport of horse racing,” said Mark Midland, the founder and chief executive officer of Horse Racing Labs. “This passion and love for the sport is shared by our entire team. As the industry has acknowledged time and time again, the sport is in dire need of new ideas and innovation to ensure growth for the future.”

Over the past several months, a number of states have taken action seeking to bar the activity of daily fantasy sports sites, notably FanDuel and DraftKings, the two leading companies in the market. The states have argued that the sites offer a form of gambling in violation of the law. Those sites do not offer contests on horse racing.

Derby Wars offers a variety of contests for horse racing, including some that require players to pick horses in strings of races at specific racetracks. Most of the contests require players to pay a fee to enter, with payouts based on which player earns the most money from fictional wagers on the races.

In October, Scott Daruty, president of the Stronach Group’s simulcast marketing company, told the California Horse Racing Board that he believed Derby Wars was operating in violation of federal law and that the company was not providing any compensation to the racing industry despite relying on races for its business. He compared the company’s business to an account-wagering company.

The suit filed by the Stronach Group further alleges that Derby Wars has not been licensed by state regulators in any jurisdiction, also in violation of federal law.