Derby Wars Granted Court Extension

A California federal court Wednesday granted the parent company of DerbyWars an extension to Jan. 22 to answer a four-count racketeering lawsuit filed two weeks ago by a group of tracks owned by The Stronach Group.

The two sides have talked several times since the civil complaint was lodged in United States Central District Court of California Dec. 2, but are not close to resolving the issue out of court, according to Scott Daruty, president of simulcast signal broker Monarch Content Management, LLC, which is owned by The Stronach Group.

“We have had a couple of discussions. The Monarch team and the DerbyWars team did meet last week in Tucson during the [University of Arizona Race Track Industry Program] symposium,” Daruty said. “We had a discussion about potential business models and potential settlement terms, and we have had a follow-up phone call since then, but there's nothing definitive that's been agreed to. I think we'd describe the talks as productive, but still a long way away from reaching an agreement.”

The Stronach-owned tracks (Santa Anita Park, Golden Gate Fields, Gulfstream Park, Laurel Park, Pimlico Race Course and Portland Meadows) are demanding a jury trial and seeking monetary, punitive, and exemplary damages, plus injunctive relief, from the Louisville-based DerbyWars, which is owned by Horse Racing Labs, LLC.

Since its inception in 2011, DerbyWars has blossomed into the racing industry's highest-profile online daily handicapping contest site, offering lucrative cash prizes in exchange for a cut of entry fees from players.

Much like the debate over the legality of daily professional team sports fantasy gaming that has gripped the nation over the past several months, the Stronach tracks' objection to DerbyWars essentially boils down to allegations over illegal bet-taking and the unsanctioned use of race results to determine contest winners.

In the lawsuit, the Stronach tracks allege that the daily online contests hosted by DerbyWars constitute “racketeering activity” that violates the Racketeer Influenced and Corrupt Organizations Act (RICO), and that DerbyWars is “indisputably a form of wagering” that operates in violation of the Interstate Horse Racing Act of 1978.

Two other complaints in the suit allege violations of the California Business & Professions Code, which regulates “unfair or fraudulent” business acts, and Intentional Interference With Prospective Economic Advantage, which is a law that covers third-party disruptions of profitable business relationships.

Of the four charges, the RICO allegations are the most serious, because as a law designed to combat organized crime, RICO victims–once liability and the extent of harm are established–are entitled to mandatory triple damages.

Mark Midland, the founder of Horse Racing Labs, has declined several opportunities over the past week to speak on the record to TDN about the litigation and any related negotiations.

In early November, when he was asked about the threat of a lawsuit that Daruty had put on the record at an Oct. 21 California Horse Racing Board (CHRB) committee meeting, Midland told TDN that critics were missing the point that daily handicapping contest sites like DerbyWars return benefits to the industry that are measured not so much in dollars, but in terms of fan education, product exposure and cross-promotional marketing.

“It's a game of skill because you're playing in a contest against

other players,” Midland said at the time, defending his product as a game of skill, and not betting. “The picks that you make create the fantasy points that create a leaderboard that determines the outcome of the game. There's also additional skill involved in managing your picks as to where you are on the leaderboard. 'Gambling' is defined as wagering on a direct outcome, like wagering on a horse in a race.”

Daruty said he'd “really rather not comment on anything specific” about the negotiations with DerbyWars. “But what I can tell you is we continue to stand by the essence of our lawsuit, which is that this activity is not permissible unless they have the consent of the host racetrack and the host horsemen as well as the necessary regulatory approvals.”

While the lawsuit seeks specific restitution from DerbyWars, Daruty said he is aware that the legal precedent that the outcome of the case might set is acting as a general deterrent against other firms involved in either fantasy racing or handicapping contests.

On Dec. 4, two days after the Stronach tracks filed the lawsuit, the online contest company HorseTourneys.com posted a notice on its website that read, in part: “Due to the recent lawsuit filed by The Stronach Group racetracks against another major tournament website, effectively immediately and until further notice, use of races in HorseTourneys tournaments originating from The Stronach Group racetracks will be restricted only to tournaments involving entries to sanctioned, on-track events.”

In addition, Daruty explained, “I've also heard of at least one other potential business that was about to get into daily handicapping contests in a very big way that has decided they'd better not do that and wait and see how this all settles out. Our goal was to try and set the right model on a long-term basis for these kinds of activities, and I think it's really still in the process, but headed in the right direction, based on what I've seen in the marketplace.”

Daruty said he makes a “big distinction” between handicapping contests that are conducted as an “occasional promotional activity” at tracks or by account wagering companies versus “conducting handicapping contests every day on almost every track as a business” in and of itself.

“So while we are very supportive of the first category–the occasional promotional category–when it comes to the second category, which is operating a business conducting handicapping contests every day on almost every race, we view that as being akin to an account wagering company,” Daruty said. “We think both a sense of fairness as well as applicable law require that second category to have various consents and approvals.”

Some of these issues might come into play Thursday at the monthly CHRB meeting, where the final item on the agenda before the meeting goes into closed session pertains to “Discussion by the Board regarding fantasy sports, including persuading participants to become horse race players.”

Daruty said he will be at the CHRB meeting, but “I don't know exactly how the horse racing board envisions that item playing out. I don't know whether they'll be calling on members of the audience for comments or not. If there's a question that's relevant and an opportunity for me to speak, I will do so. But obviously I'll stay away from anything that's related to the ongoing litigation.” @thorntontd