Abstract
In a decision that may have broader application for cases involving the fantasy sports industry, U.S. District Court Judge James Otero of the Central District of California recently held that Horse Racing Labs, LLC d/b/a Derby Wars is operating an off‐track betting site subject to the Interstate Horseracing Act (IHA), 15 U.S.C. § 3001 et seq.
Plaintiffs are a collective of racing associations in six states that operate horse racing events. Derby Wars (www.derbywars.com), in contrast, operates an online fantasy horseracing website with 150 daily fantasy contests. Users pay a fixed entry fee, select a series of horses from horse races, including at Plaintiffs' sites, and compete head‐to‐head or in a group with other users. The user with the highest computed score wins a predetermined prize depending on the contest.
Plaintiffs first approached Derby War's CEO to do business together, but the relationship never materialized. As a result, the collectives sued Derby Wars under the California Business and Professional Code and the IHA—which explicitly permits racing associations to bring civil suits—seeking injunctive relief and damages. Among other claims, Plaintiffs claimed that Derby Wars' required entry fees constituted a bet or wager on interstate horseracing events, such that Derby Wars was “as an off‐track betting system” subject to the IHA, which would in turn require Derby War's to possess license under the IHA and to pay Plaintiffs' host fees due under state law.
Interestingly, the parties each relied heavily on the same 1995 California Supreme Court case, Bell Gardens Bicycle Club v. DOJ, 36 Cal. App. 4th 720, in which a jackpot prize was found to be a lottery distinguishable from the pot won in “regular” poker in a jackpot poker game. In that case, the court defined a bet or wager as “an agreement between two or more that a sum of money or some valuable thing, in contributing which all agreeing to take part, shall become the property of one or some of them, on the happening in the future of an event at the present uncertain; and the stake is the money or thing thus put upon the chance.”
While Derby Wars argued that its entry fees were for entry in skill contests and not “wagers” because the entries fees are fixed, the prizes are predetermined, and Derby Wars does not compete in the contests, the court ultimately reasoned that Derby Wars' entry fees were more “akin to” “wagers.” The court likened the entry fees to wagers that form a poker “pot” because the prize is fixed and awarded to the winner based on their skill (as opposed to random events) in selecting horses. Since the court determined the entry fees are “wagers” based on California state law, it concluded that Derby Wars was operating an off‐track betting system under 15 U.S.C. § 3002(7) subject to the IHA. Notably, the court observed, but did not address, the requirement that IHA defines an interstate off‐track wager as “a legal wager placed or accepted in one State with respect to the outcome of a horserace taking place in another State and includes parimutuel wagers, where lawful in each State involved, placed or transmitted by an individual in one State via telephone or other electronic device.” Nor did the court find it necessary to determine whether the contest entry fees were a parimutuel wager, observing instead that the IHA definition only required a wager to apply. Based upon these findings, the court granted Plaintiffs' partial summary judgment on the IHA issue, and allowed the state law claims to proceed to trial.